Philippines: New SEC rules for investment companies

Author: | Published: 16 Jul 2018
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The Securities and Exchange Commission (SEC) issued the new implementing rules and regulations (IRR) of the Investment Company Act (ICA), replacing the 1998 ICA Rule 35-1. The new set of rules, which took effect on January 26 2018, aims to develop the Philippine capital markets and help prepare investment companies to qualify for and compete in international cross-border transactions by aligning the rules with global standards and practices.

Under the new IRR, investment companies must have a minimum subscribed and paid-up capital of PHP50 million (around $940,000). A request for a lower paid-in capital of no less than PHP1 million may be granted by the SEC, provided that the investment company is part of a group of investment companies that is already under the management of a fund manager with a track record of at least five years.

The rules also require an investment company to appoint a fund manager with an investment company adviser licence. To obtain this licence, the applicant must have paid-up capital of at least PHP50 million, a minimum unimpaired net worth of at least PHP50 million and an additional unimpaired capital requirement of 0.02% of the excess of PHP100 billion of the total assets under management. The applicant must submit audited financial statements for the previous three years reflecting its continuing business operations. The applicant's board of directors must be composed of members with a track record of at least five years in fund management or related functions in any reputable investment banking institution or asset management company dealing with securities, and must have passed the licensing exam for fund managers prescribed by the SEC.

A 'fit and proper rule' is also imposed, requiring the fund manager, its directors, key executive officers, and substantial shareholders to be deemed fit and proper to serve, based on the following: honesty, fairness, and integrity; diligence, competency, and capability; and, financial soundness.

The new rules also require the appointment of an independent third-party custodian which must be a universal commercial bank or a non-bank entity with a trust licence, or a custodian bank accredited by the Bangko Sentral ng Pilipinas, or a registered securities depository, with adequate resources and effective internal control procedures.

The requirement of a minimum investment of PHP5,000 by any single investor in shares/securities issued by an investment company has been abolished in the new rules.

Raoul R Angangco Leah Glenda J Quesada