Editing by Nathaniel Cajuday

• The Securities and Exchange Commission has issued the draft version of the implementing rules and regulations (IRR) of the  Financial Products and Services Consumer Protection Law (Republic Act 11765).
• The IRR of the law is expected to strengthen the regulatory powers of financial regulators, namely the Bangko Sentral ng Pilipinas, the Insurance Commission, the Cooperative Development Authority (CDA), and the SEC.
• The Commission will also have the following stricter measures:
  • power to formulate its standards and rules, conduct market surveillance and examination, require financial service providers and their third-party agents to submit reports, and impose enforcement action against non-compliant financial service providers. 
  • define investment fraud as any form of deceptive solicitation of investments from the public, which includes Ponzi schemes and such other schemes involving the promise or offer of profits or returns that are sourced from the investments or contributions made by the investors themselves
  • require investment advisers to file their applications with the Commission within 90 days from the effectiveness of the memorandum circular
  • require the staff of financial service providers that directly deal with consumers to undergo adequate training suitable to the complexity of the financial products or services they offer.
  • punish the lawbreakers by one- to five-year imprisonment or a fine of ₱50,000 to ₱2 million, or both. 
  • impose a fine of ₱50,000 to ₱10 million for each instance of investment fraud and not more than a ₱10,000 fine for each day of continuing violation.

With investment scams becoming more prevalent since the start of the pandemic due to joblessness in the country and people starting to find more ways to easily earn money, the Securities and Exchange Commission (SEC) has finally issued the draft implementing rules and regulations (IRR) of Republic Act 11765, or the Financial Products and Services Consumer Protection Act—passed into law in May 2022.

The IRR of the law shall be applied to all financial products and services—securities, investments, payments, remittances, and other similar products and services—and financial service providers that aim to provide consumers better protection from investment scams and fraudulent activities.

“It is the policy of the State to ensure that appropriate mechanisms are in place to protect the interests of consumers of financial products and services under the conditions of transparency, fair and sound market conduct, and fair, reasonable, and effective handling of financial consumer disputes, which are aligned with global best practices,” the first section of the rules read.

Furthermore, the draft aims to put in place financial consumers’ rights to equitable and fair treatment, disclosure and transparency of financial products and services, protection of consumer assets against fraud, data privacy and protection, and timely complaint handling.

Accordingly, upon implementation, it will strengthen the regulatory powers of financial regulators, namely the Bangko Sentral ng Pilipinas, the Insurance Commission, the Cooperative Development Authority (CDA), and the SEC, to reinforce the confidence of consumers of financial products and services in the financial system.

The SEC will also have the power to formulate its standards and rules, conduct market surveillance and examination, require financial service providers and their third-party agents to submit reports, and impose enforcement action against non-compliant financial service providers. 

Where, aside from the above-mentioned powers, the Commission will also implement enforcement actions such as restriction, disqualification, the imposition of fines, suspensions, or penalties, a cease and desist order, suspension, and disgorgement of profits obtained or losses avoided.

And to formally address the increasing number of investment frauds, the IRR defines investment fraud as any form of deceptive solicitation of investments from the public. “This includes Ponzi schemes and such other schemes involving the promise or offer of profits or returns that are sourced from the investments or contributions made by the investors themselves, boiler room operations, or the offering or selling of financial products or services to the public without a license or permit from the Commission, unless such offering or selling involves exempt securities or are considered exempt transactions, as provided for under existing laws.”

And to put stronger regulations in place, once the IRR is implemented, investment advisers are required to file their applications with the Commission within 90 days from the effectiveness of the memorandum circular.

“These rules ensure that financial consumers are treated fairly, honestly, and professionally at all stages of its relationship with the financial service provider. Financial service providers shall adopt mechanisms to safeguard the interest of their financial consumers, which shall include rules regarding ethical staff behavior, acceptable selling practices, fair and equitable terms and conditions, and provision of products and services appropriate to the capacity and risk appetite of the financial consumers,” the draft emphasized, highlighting that staff of financial service providers that directly deal with consumers must receive adequate training suitable to the complexity of the financial products or services they offer.

For violators, the IRR stressed that any person who willfully disregards the provisions may be punished by one- to five-year imprisonment or a fine of ₱50,000 to ₱2 million, or both. Administrative sanctions are imposed with a fine of ₱50,000 to ₱10 million for each instance of investment fraud and not more than a ₱10,000 fine for each day of continuing violation.

Prior to this, the SEC has always been actively flagging fraudulent investment schemes and reminding the public to be cautious and do their due diligence. 

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This article is published on BitPinas: STRONGER FINANCIAL REGULATIONS: SEC Issues Draft To Impose Stricter Penalty vs Scammers, Ponzi Schemes

Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.

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• Source: https://bitpinas.com/regulation/sec-irr-draft-republic-art-11765/