Rules vs investment fraud, abuses issued

THE Securities and Exchange Commission (SEC) has released the implementing rules and regulations of Republic Act 11765, or the Financial Products and Services Consumer Protection Act, which seeks to have stronger regulation and enforcement against investment frauds and abuses.

The IRR covers all financial products and services, and financial service providers under the SEC’s jurisdiction. These financial products and services include credit, securities and investments. Digital financial products or services that pertain to the broad range of financial services accessed and delivered through digital channels are also within the IRR’s coverage.

“True to the objectives of the FCPA, the IRR advances financial consumers’ right to equitable and fair treatment, to disclosure and transparency in the marketing of financial products and services, to protection of consumer assets against fraud and misuse, to data privacy and protection, and to timely handling and redress of complaints of consumers,” SEC Chairman Emilio B. Aquino said of the issuance of the IRR.

“In turn, the IRR reinforces the commission’s mandate of, and unwavering commitment to, protecting financial consumers, and inculcating in financial service providers the values of fairness, transparency, accountability and ethics,” Aquino added.

The IRR for the FCPA reinforces the SEC’s power to exercise authority over issuers of securities in tokenized or digital forms. This is in line with the updated definition of securities under the rules, which cover the tokenized or digital forms of securities defined by the Securities Regulation Code.

The rules also expand the enforcement actions that may be conducted by the SEC, which shall include the restriction on the ability of the financial service provider to collect excessive or unreasonable interests, fees, or charges; disqualification and/or suspension of directors, trustees, officers, or employees; and disgorgement, among others.

The rules also allow the SEC to issue an order requiring accounting and disgorgement of profits obtained or losses avoided, as a result of a violation of the FCPA and other existing laws, including reasonable interest, in addition to penalties it may impose for such violation.

The Commission, under the IRR, may further adopt additional rules and regulations concerning the creation and operation of a disgorgement fund, payments to financial consumers, rate of interest, period of accrual, and other matters related to the disgorgement fund.

Persons who violate provisions of the FCPA or the rules pursuant to its implementation face imprisonment of not less than one year, but not more than five years, or by a fine of not less than P50,000 but not more than P2 million or both, at the discretion of the court.

Should the violation be committed by a corporation or a juridical entity, the directors, officers, employees, or other officers who are directly responsible for such violation shall be held liable.

Persons found responsible for investment fraud may also be subject to administrative sanctions, from a fine of P50,000 to P10 million for each instance of investment fraud plus not more than P10,000 for each day of continuing violation, in addition to other administrative sanctions under Section 54 of the SRC.

The rules also provides the SEC the authority to regulate persons engaged in the business of or acting as an investment adviser in the country, as well as those who represent or identify themselves as investment advisers or make use of the words investment adviser or financial adviser or variations, unless they are registered with the SEC.

An investment adviser shall refer to any person who engages in the business of advising others as to the value of investment products or as to the advisability of investing in, purchasing or selling investment products, or a person who issues or promulgates analyses or reports concerning investment products.

All persons acting as investment advisers may continue functioning, provided that they will file with the SEC an undertaking signifying their intent to register as investment adviser within 90 days from the effectivity of the IRR.

The SEC’s memorandum circular on the IRR will take effect 15 days after its publication in the Official Gazette or in at least two national newspapers of general circulation.