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SEC sets new rules for the registration of investment companies

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THE Securities and Exchange Commission (SEC) has set new rules for the registration of investment companies that would keep the Philippines at pace with global standards. 

The country’s corporate regulator published on Thursday the implementing rules and regulations (IRR) of Republic Act No. 2629, also known as the Investment Company Act (ICA). The IRR amends ICA Rule 35-1 initially published in 1998. 

Investment companies applying for registration are required to include the word “fund” in their corporate name, with the primary purpose stating that they will “engage in the business of investing, reinvesting, or trading in securities or other investment assets.”

The rules require investment firms to have a minimum subscribed and paid-up capital of P50 million. The SEC will allow for a lower paid-up capital of at least P1 million if the firm applying for registration is part of a group of companies already being managed by the same fund manager who has a track record of at least five years. 

To provide accountability and transparency, firms offering their securities will be required to submit a registration statement which the commission has the right to reject should it contain false or misleading information or found to have defrauded investors. 

A prospectus will likewise be made available to the investing public through a fund distributor. In the prospectus, the company will discuss the use of proceeds of the issuance, profile of prospective investors, its business experience for the last five years, and risk management procedures, among others.

An investment company is allowed to make use of the SEC’s shelf registration program, where it can issue funds in one or more tranches based on a single registration statement, so long as the company informs the commission of any material changes at least 30 days prior to the offering or sale of securities.

The SEC also set a “fit and proper rule” for fund managers, which assesses the latter’s top officials based on their honesty, fairness, and integrity; diligence, competency, and capability; and financial soundness. Fund managers must also have an investment company adviser license.

The fund manager also has the responsibility to submit reportorial requirements on behalf of the investment firm.

“The fund manager shall submit to the commission a monthly issuance and redemption report of shares or units under oath executed on its behalf by its treasurer or any other officer holding an equivalent position,” according to the IRR.

An independent custodian would have to be appointed by the investment firm, which will hold all proceeds from the sale of securities. Independent custodians should be a universal or commercial bank with trust license, a non-bank entity with trust license, a custodian bank accredited by the Bangko Sentral ng Pilipinas, or a registered securities depository.

Meanwhile, the initial minimum investment and additional investment made by investors will be determined by the company as stated in its prospectus.

“Unless otherwise provided in the prospectus and approved by the commission, the shares of units sold by the investment company shall be on a cash basis. Installment sales are prohibited,” read the IRR.

The new rules will take effect on Jan. 26. — Arra B. Francia