BFI FINALZ M2

TRUST AND EXCHANGE FUNCTION

Trust Function

refers to the role of a bank as a fiduciary, entrusted with managing and

safeguarding assets on behalf of a client.

Testamentary Trusts

Established by a will after the death of the settlor.

Living or Inter Vivos Trusts

Created during the lifetime of the settlor to manage assets

while the settlor is alive.

Charitable Trusts

Funds or assets designated for charitable purposes.

Investment Trusts

Where banks pool resources from different clients to invest in various

financial assets for better returns.

Duty of Loyalty

Ensuring that the trustee acts solely in the interests of the beneficiaries,

avoiding conflicts of interest.

Duty of Prudence

Managing the trust’s assets with care, skill, and caution.

Duty of Full Disclosure

Ensuring that beneficiaries are kept informed about the

management of the trust’s assets.

The Trust Law (Republic Act No. 337)

This law provides the foundation for the operations

of trust functions in the country, outlining the legal responsibilities of banks as trustees.

The General Banking Law of 2000 (Republic Act No. 8791)

This law provides the general

regulatory framework for banks, which includes the governance of trust departments and

activities.

Bangko Sentral ng Pilipinas (BSP) Circulars and Memoranda

These documents contain

specific regulations that guide the operation of the trust business, ensuring that banks

meet regulatory requirements regarding trust management.

Estate Planning and Wealth Management

Trusts provide a means of transferring wealth from one generation to the next, ensuring

that the settlor’s wishes are respected. It also aids in managing the assets of individuals

with special needs, minors, or those unable to manage their own financial affairs.

Corporate Trusteeship

Corporations use trusts to manage pension funds, investment portfolios, and employee

benefits, ensuring compliance with regulations and safeguarding the interests of

stakeholders.

Government Bonds and Securities

Banks can also act as trustees for government-issued bonds and securities, ensuring that

funds are properly managed and allocated.

Exchange Function

refers to the role of banks in facilitating foreign exchange (forex)

transactions. This service is essential for individuals and businesses that need to convert one currency into

another for the purpose of international trade, investment, or travel.

Currency Conversion

Facilitating the exchange of foreign currencies for local pesos and

vice versa.

Remittances

Facilitating the transfer of funds from overseas Filipinos to their families in

the Philippines.

International Trade Finance

Banks help businesses engaged in international trade by

offering services such as letters of credit, trade bills, and hedging against currency risks.

Export and Import Activities:

Banks facilitate foreign exchange transactions that are

necessary for businesses to conduct trade. Companies importing goods need foreign

currencies, while exporters need to convert foreign revenue into pesos.

Capital Inflows and Outflows

Banks play a crucial role in managing the inflow of foreign

investments and the outflow of capital, ensuring that both comply with regulatory

frameworks set by the government and the Bangko Sentral ng Pilipinas (BSP).

Republic Act No. 7653, The New Central Bank Act

This law established the Bangko

Sentral ng Pilipinas (BSP) as the central bank of the Philippines and outlined its role in

regulating foreign exchange transactions to stabilize the Philippine peso and manage the

country’s foreign reserves.

BSP Circular No. 1420:

This provides guidelines on the conduct of foreign exchange

transactions and the reporting requirements for banks involved in forex trading.

Foreign Exchange Liberalization Act (Republic Act No. 8183)

This act relaxed certain

restrictions on foreign exchange dealings to encourage international investments and

trade.

Anti-Money Laundering Act (Republic Act No. 9160)

Banks must ensure compliance with

anti-money laundering regulations when dealing with large or suspicious foreign

exchange transactions.

Support for International Trade

The exchange function is integral to businesses that need to pay

for imports or receive payments for exports. By converting foreign currencies, banks facilitate

smoother international trade operations.

Managing Foreign Investments

Banks help attract foreign capital by ensuring that foreign

investors can easily convert their funds into pesos and repatriate profits.

Economic Stability

The exchange function allows the BSP to monitor and regulate foreign

exchange markets, contributing to the stability of the Philippine peso and the country’s overall

financial system.