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SEC issues rules promoting easy investing, good governance in capital market

The Securities and Exchange Commission (SEC) has issued new rules simplifying the onboarding of customers in securities markets and mandating exchanges and other organized markets in the Philippines to have more independent directors and sectoral representatives.

The Commission approved the Rules on Simplified Onboarding Procedures for Low Risk Accounts and the Rules on the Number of Independent Directors and Sectoral Representatives of Exchanges and Other Organized Markets during an en banc meeting on August 11.

“A facilitative but safe onboarding process for customers in securities markets would allow more Filipinos to participate in the ownership of enterprises and other investment opportunities to meet their financial goals,” SEC Chairperson Emilio B. Aquino said.

“As we encourage investments in the capital market, however, promoting good corporate governance and the protection of minority investors becomes crucial as ever. To this end, the Commission is requiring all exchanges and other organized markets to align their governance structures with international best practices.”

Simplified customer onboarding

Under SEC Memorandum Circular No. 21, Series of 2020, the simplified onboarding process for customers of SEC-regulated financial intermediaries (FIs) shall apply to low risk accounts, or those opened and maintained by individual Filipino investors with an initial and subsequent deposit, investment or reinvestment amounting to an aggregate of not more than P50,000.

For low risk accounts, a regulated FI may limit the information and documents required of a prospective customer to his/her complete name, birthdate, email address, residential/ business address, mobile and/or landline number, source of income, a copy of a verifiable identification card or document with photo, and a signature card.

Accordingly, the customer may already open an account and commence a transaction upon providing in writing, digitally or through a physical medium, the minimum information required and upon vetting by at least two responsible staff and/or officers of the concerned FI, acting as checker and maker.

Nevertheless, regulated FIs shall continue implementing the necessary know-your-customer or customer due diligence measures to establish the true identity and existence of their customers before, during or after the opening of the account but not later than 15 days from the date the account is opened.

A regulated FI may prescribe other criteria and measures for account opening in addition to the minimum information required under the newly issued circular.

Regulated FIs are likewise required to comply and institute the necessary measures to ensure compliance with the requirements on suitability and on prompt payment and delivery of obligations and other requirements under Republic Act No. 8799, or The Securities Regulation Code (SRC), and the 2015 SRC Rules that are not inconsistent with the new rules.

Independent directors, sectoral representatives

Meanwhile, as part of efforts to promote good corporate governance and the protection of investors, SEC Memorandum Circular No. 20, Series of 2020 provides that independent directors shall constitute at least one-third of the members of the board of directors of exchanges and other organized markets.

An independent director is a person who, apart from his/her fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his/her exercise of independent judgment in carrying out his/her responsibilities as a director.

In addition to the qualifications of an independent director provided for in applicable laws, regulations and SEC issuances, an independent director of an exchange and other organized market shall have the relevant experience in or working knowledge of the capital or financial markets for at least three years prior to his/her election.

Also, there shall be at least four persons representing the interests of issuers, investors, and other market participants, with each sector having at least one representative, in the board of directors of exchanges and other organized markets.

A person who is elected as director to represent any of these sectors in the board of an exchange or other organized market shall have had the relevant experience in or working knowledge of the related sector and the capital or financial markets for at least three years prior to the person’s election.

A person may be elected as a director representing any of these sectors for a maximum period of 10 years with a mandatory cooling off period of at least one year after the first five years.

Section 179 (m) of Republic Act No. 11232, or the Revised Corporation Code of the Philippines, authorizes the SEC to “prescribe the number of independent directors” and (d) to “promote corporate governance and the protection of minority investors, through among others, the issuance of rules and regulations consistent with international best practices.”

Based on the best practices of major and comparable markets in many economies, the number of independent directors of their exchanges comprise a majority of the members of the board of directors.

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