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MB Further Liberalizes Bank Cross-Selling Framework; Now Includes Collective Investment Schemes

The Monetary Board (MB) further liberalized its cross-selling framework by allowing banks to use their premises to market and sell collective investment schemes (CIS) to bank clients. CIS products specifically include mutual funds, unit investment trust funds and variable unit-linked life insurance policies.

Cross-selling is a market practice where bank premises serve as a distribution channel for financial products that are not those of the bank.

Previously, the BSP engaged market organizations in outlining its multi-stage reform initiative on cross-selling. This new approval of the MB reflects phase two and expands the products which banks can cross-sell. Specifically, CIS products of entities belonging to the same banking group or financial conglomerate as the bank may be cross-sold by the latter.

In addition, traditional protection-type insurance products such as life policies may now be cross-sold by banks even if the insurance product is from an entity that is not within same banking group or financial conglomerate as the bank.

While phase two further liberalizes the products for cross-selling, more stringent disclosure requirements are also being introduced. These new disclosures are in line with the BSP’s drive towards consumer protection and are meant to make potential investors aware of the investment risks.

CIS carry the investment risk of a potential loss of principal and/or the risk of not achieving the targeted rates of return.

The new disclosures include a “Product Highlights Sheet” (PHS) which underscores key product information in a clear and concise manner.  Consistent with prudent practice on investments, a Client Suitability Assessment shall be undertaken prior to the acquisition of the client of a CIS. This is to be followed by an Investment Policy Statement which formalizes in writing the investment philosophy of the client.

There is also the required inclusion of a standard disclosure statement in all investment contracts and marketing materials that the CIS is not a product of the bank. And to instil full transparency, financial product providers are expected to take all reasonable steps to ensure fair dealings with the client, particularly disclosing potential conflicts of interest, where they arise.

BSP Governor Amando M. Tetangco, Jr. notes that the MB approval provides the investing public with more financial choices but balances this with enhanced consumer protection provisions.

“This reform initiative provides investors with easier access to varied financial products that can address different investment objectives”, the Governor said.

He added however that “the MB has taken the explicit initiative to align the increased options with full transparency and investor awareness”.

This latest reform is in line with the BSP’s general intent to liberalize the banking industry while upholding governance responsibilities from stakeholders and introducing consumer protection initiatives, where warranted.


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