BSP OKs rules on trusts’ internal audit (Sabong News)
Author
Lee C. Chipongian
Date
APRIL 03 2022
The Bangko Sentral ng Pilipinas (BSP) has revised the regulation covering the internal audit function of a trust corporation (TC) and allowed a group internal audit unit for TCs that are part of a group structure.
BSP Governor Benjamin E. Diokno, who signed the amended rules under Circular No. 1141 last March 29, said that when a TC’s parent company is a bank or a non-bank financial institution (NBFI), a TC “may have its internal audit activities performed by the group internal audit function without being subject to the outsourcing framework” since it is already under the supervision of an appropriate regulatory authority for banks, insurance companies, investment companies, investment houses, or financing companies.
In this case, the circular noted that the head of the group internal audit function may define the internal audit strategies, methodology, scope and quality assurance measures for the entire group. “This will be done in periodic consultation and coordination with the TC’s board of directors or audit committee,” said Diokno in the circular memo.
TCs will have a permanent internal audit function, said the BSP. “lf the TC belongs to a group structure, the internal audit function will be established either in the TC or centrally by the immediate or ultimate parent bank/NBFI,” it added.
However, TCs with internal audit arrangements with external parties but do not meet conditions provided under the circular will be treated as outsourced activities.
A TC is allowed to outsource internal audit activities covering all areas of its operations permitted under the BSP’s outsourcing rules. But, the BSP said the internal audit activities will not be outsourced to the TC’s own external auditor/audit firm or to an internal audit service provider that was previously engaged by the TC in the same area covered by the internal audit activity. In such cases, there should be a one-year “cooling off” period, according to the circular.
An internal audit function is considered the third line of defense in a system of internal controls. The internal audit is an “independent, objective assurance and consulting function established to examine, evaluate and improve the effectiveness of the risk management, internal control, and governance processes of an organization,” said the BSP.
The internal audit function will assess and complement the operational management, risk management, compliance, and other control functions of a TC.
The central bank first proposed to implement an internal audit function for TCs owned by group structures last July 2021.
The circular basically adopted the same rules on banks’ internal audit function to TCs, as stated in the provisions for the permanency of the internal audit function, and the internal audit function for group structures.
Similar with the rules for banks, the BSP said TCs that are in group structures will have a permanent internal audit function established either in the trust corporation or centrally by the parent bank or non-bank financial institution.
Last year, the banking sector’s trust holdings went up to P3.71 trillion or up by 8.19 percent compared to 2020’s P3.43 trillion, based on central bank data.
The 46 universal and commercial banks accounted for P3.68 trillion of the total, while the 46 thrift banks had P28 billion. The big banks’ trust holdings increased from P3.40 billion in 2020, while the smaller savings banks’ trust assets have decreased from P31.63 billion.
The BSP is monitoring 30 trust entities.
