SEC adopts ASEAN Sustainable and Responsible Fund Standards

​The Securities and Exchange Commission (SEC) has approved the adoption of the ASEAN Sustainable and Responsible Fund Standards (SRFS), establishing new guidelines that will allow both local and ASEAN-member investment companies and collective investment scheme operators to offer sustainable and responsible funds locally and across the region.

The Commission on April 13 issued SEC Memorandum Circular No. 4, Series of 2023, providing the Adoption of the ASEAN SRFS and the Establishment of Rules on Qualification of a Local Investment Company under the ASEAN SRFS and Recognition of a Foreign Collective Investment Scheme Qualified under the ASEAN  SRFS  that  Seeks  to  Offer  in  the  Philippines  Under  the  ASEAN  CIS Framework.

The ASEAN SRFS provides minimum disclosure and reporting requirements which can be consistently applied to collective investment schemes (CIS) in the region, and addresses the need for a comparable, uniform, and transparent disclosure of information to mitigate the risk of greenwashing, among others.
 
The new rules are in line with the Framework for Cross-Border Offering of ASEAN Collective  Investment  Schemes  (CIS  Framework).  They  apply  to local investment companies, including sub-funds of umbrella funds, and fund managers that seek to qualify under the ASEAN SRFS and want to either offer locally or on a cross-border basis under the ASEAN CIS Framework, as well as to CIS operators and foreign Sustainable and Responsible Fund that seek to offer in the Philippines under the ASEAN CIS Framework.

Local investment companies

An investment company, including any sub-fund of an umbrella fund, may qualify as an ASEAN SRF upon showing proof that it is registered as an investment company and is authorized to issue shares and/or units of participation to the public under Republic Act No. 8799 or the Securities Regulation Code (SRC).

It must also show compliance with SEC Memorandum Circular No. 11, Series of 2022 (SEC MC 11), on the Rules on Sustainable and Responsible Investment Funds, as well as the ASEAN SRFS.

An existing investment company may apply as an ASEAN SRF by accomplishing an application form signed by at least a majority of the board of directors of the investment company and fund manager.

Investment companies already qualified under the ASEAN SRFS, or are applying to qualify as an ASEAN SRF, who seek to offer their shares on a cross- border basis must also comply with SEC Memorandum Circular No. 9, Series of 2021 (SEC MC 9), on the Rules on Authorization of an Investment Company as a Qualifying  CIS  and  Recognition  of  a  Foreign  CIS  under  the  ASEAN CIS Framework.

Foreign SRFs

To be recognized in the Philippines, the foreign SRF and CIS operator must comply with SEC MC 9, with respect to the approval and recognition of foreign CIS to be offered in the country. It must also submit the standard letter issued by its home regulator as proof that it has qualified as an ASEAN SRF.

They must also show compliance with additional requirements under SEC MC 11, including a name that accurately and fairly reflects the sustainability or ESG factors in its investment strategy, as well as a disclosure on its sustainable investment strategy, among others.

Upon  satisfaction  of  the  documentary  requirements,  the  foreign  SRF,  CIS operators, or appointed local representative will have to submit an application to the Commission for recognition as a foreign SRF. The application should further include a copy of the prospectus reflecting additional disclosure requirements provided in the new guidelines.

If the Commission is satisfied that the foreign SRF has complied with the requirements, a letter recognizing the foreign SRF shall be issued.

Once recognized, the foreign SRF shall be subject to reportorial requirements provided under MC 9, including annual and interim reports showing how it attained its sustainable investment objective during the reporting period, plus a brief description of actual non-ESG investments and their percentage of the foreign SRF’s net asset value (NAV), among others.

The foreign SRF must also inform the Commission if its ESG investment threshold has fallen to less than two-thirds of its NAV, including a description of the actions taken or to be taken to rectify the breach.

Administrative actions

The Commission may suspend or revoke the qualification of an investment company as an ASEAN SRF if it is no longer compliant with local SRIF Rules and/or the ASEAN SRFS.

Foreign SRFs may also lose their recognition if they are no longer compliant with the rules set by the MC or for other grounds specified therein.

Violation of the rules shall subject the investment company and/or its fund manager to the same sanctions provided in SEC MC 11, aside from the removal of its name in the SEC and ACMF microsite dedicated for ASEAN SRFS, as may be applicable.

Meanwhile,   the   CIS   operator/foreign   SRF   may    incur   penalties   for overemphasizing sustainability or ESG features in any communication or advertising materials, failure to report or delay in reporting a breach of recited ESG investment threshold, or inconsistency with sustainable investment objective of the ASEAN SRF within five business days from discovery. Such violations will earn a reprimand or incur a fine, depending on the frequency of the offense.

The Commission may also reprimand or impose fines against foreign SRFs/CIS operators for their failure to rectify or delay the rectification of a breach of recited ESG investment threshold, or inconsistency with sustainable investment objective of the ASEAN SRF within 30 business days from discovery.