626-A EXPANDED FOREIGN CURRENCY DEPOSIT UNIT INVESTMENTS IN FOREIGN CURRENCY DENOMINATED STRUCTURED PRODUCTS
a. Maturity – The maximum contractual maturity of any investment in structured products shall be five (5) years.
b. Credit quality of issuer – Acceptable issuers are banks and SPVs collateralized by securities rated at least “A” or its equivalent by an international rating agency acceptable to the Monetary Board.
c. Booking – Investments in structured products as herein defined shall be booked in accordance with Appendix 33.
d. Prudential limits – The total carrying value of all investments in structured products as defined herein at any given point in time must not exceed twenty percent (20%) of the total investment portfolio of the EFCDU [combined amount of Trading Account Securities (TAS), ASS and IBODI].
e. Risk management – Investing banks must have established internal processes to identify, evaluate, monitor and manage the risk exposures, e.g., credit risk, market risk, liquidity risk, operational risk, legal risk, compliance risk, created by their investments in structured products. As a minimum:
(1) Such investments must be specifically approved by the board of directors and be subject to appropriate internal limits and periodic reporting to the Board.
(2) Banks must comply with generally accepted accounting and disclosure standards and/or rules and regulations prescribed by the Bangko Sentral.
(3) An independent risk management function must be in place.
(4) Banks should have the ability to value their investments on a continuing and consistent basis and to measure their sensitivity to market movements. This should include performing, at regular intervals, stress tests that reflect extreme market conditions. As part of the valuation exercise, banks should be able to obtain bid prices from the issuers of the investment instruments on a monthly basis.
(5) Management should ensure that the risks of the investments are accurately aggregated in risk reports on a timely basis.
(Circular No. 1011 dated 14 August 2018)