SEC Philippines issues implementing rules of Financial Products and Services Consumer Protection Act

The Securities and Exchange Commission (SEC) has released the implementing rules and regulations (IRR) of Republic Act No. 11765, or the Financial Products and Services Consumer Protection Act (FCPA).

The Commission on April 25 issued SEC Memorandum Circular No. 5, Series of 2023, providing the SEC Rules and Regulations of the Financial Products and Services Consumer Protection Act of 2022.

The IRR covers all financial products and services, and financial service providers under the jurisdiction of the SEC. These financial products and services include credit, securities, and investments, including digital financial products or services which pertain to the broad range of financial services accessed and delivered through digital channels.

“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 Chairperson Emilio B. Aquino said.

“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,” Mr. Aquino added.

Stronger enforcement against fraud, abuses

The FCPA and the IRR reinforces the powers of the SEC 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 under Section 3.1 of Republic Act No. 8799, or the Securities Regulation Code (SRC).

The rules likewise expand the enforcement actions that may be conducted by the Commission, which shall include the restriction on the ability of the financial Page 2 of 4 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 SEC may enter 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 may further adopt 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 will be punished by 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 thereto.

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.

In case profit is gained or loss is avoided as a result of the violation of the FCPA or investment fraud, a fine not more than three times the profit gained or loss avoided may also be imposed by the SEC. In addition to the administrative sanctions that may be imposed, the authority of the financial service provider to operate in relation to a particular financial product or service may likewise be suspended or cancelled.

In addition, the Commission shall have the authority to adjudicate actions arising from or in connection with financial transactions that are purely civil in nature, and the claim or relief prayed for by the financial consumer is solely for payment or reimbursement of sum of money not exceeding the amount of P10 million.

The rules also provides the SEC 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 Page 3 of 4 words “Investment Adviser” or “Financial Adviser” or variations thereof, unless they are registered with the Commission.

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 as such, provided that they will file with the Commission an undertaking signifying their intent to register as investment adviser within 90 days from the effectivity of the IRR.

More protection for financial consumers

To protect the interests of financial consumers, the IRR requires financial service providers to integrate a Consumer Protection Risk Management System (CPRMS) into its enterprise-wide risk management processes and risk governance framework. The CPRMS includes the governance structure, policies, processes, measurement, and control procedures to ensure that consumer protection risks are identified, measured, monitored, and mitigated.

The board of directors of each company shall be primarily responsible for approving and overseeing the implementation of the CPRMS.

Financial service providers are also directed to establish a Financial Consumer Protection Assistance Mechanism (FCPAM), for free assistance to financial consumers on financial transaction concerns, including complaints, inquiries, and requests.

To ensure the client’s full awareness of a financial product, the SEC now requires financial service providers to a cooling-off period of no less than three days, under which the financial consumer may consider the costs and risks of a financial product or service, free from the pressure of the sales team of the financial service provider.

The IRR also reiterates the Commission’s prohibition on the employment of abusive collection or debt recovery practices.