PH SEC Issues Draft Guidelines for Registration of Online Lending Platforms
The Philippines’ Securities and Exchange Commission (SEC) issued a Press Release last Nov. 19, 2021 regarding the guidelines for registration of online lending platforms (OLPs). This follows an imposition of a moratorium on the registration of OLPs last Nov. 5, 2021. All interested parties have until December 3 to submit their comments and inputs to the CGFD by email to email@example.com.
The proposed guidelines will apply to both existing and newly registered financing and lending companies who have yet to own, operate or utilize OLPs and other modes of financial technology (fintech), as well as those who are already engaged in fintech, who look to provide their credit products and related services.
Under the proposed guidelines, registration and prior approval of the SEC is required for financing or lending companies to own, operate, or use OLPs or engage in fintech. Important to note is that such a company’s ability to engage in fintech must also be included in its purpose as stated in its Articles of Incorporation. The names of the OLPs shall also be registered as business or trade names of the financing or lending company, pursuant to the Amended Guidelines and Procedures on the Use of Corporate and Partnership Names. Applicants for an OLP license must also have at least five directors and at least two independent directors, or such number that will constitute 20% of the members of the board of directors, whichever is higher.
Documentary requirements include, among others, a detailed business and operational plan containing the company’s compliance with the Truth in Lending Act, the SEC Memorandum Circular (MC) on the Disclosure Requirements on Advertising of Financing Companies and Lending Companies and Reporting of Online Lending Platforms. Compliance with SEC MC 18 (2019) on the Prohibition Unfair Debt Collection Practices of Financing Companies and Lending Companies; the Credit Information System Act; and SEC MC 28 (2020) on the Requirement for Corporations, Partnerships, Associations, and Individuals to Create and/or Designate E-mail Account Address and Cellphone Number for Transactions with the Commission must also be shown by the applicant financing and lending company. Such documents submitted by the applicant company will then be evaluated by the SEC Corporate Governance and Finance Department (CGFD).
The financing or lending company will then present its business and operational plan as well as its marketing strategy, target market, interest rates, loan products, and services before a panel of representatives from the SEC. The financing or lending company will likewise provide a walk-through of the OLP simulating actual user experience, its complaint-handling process, and a discussion on the extent of data to be collected by the OLP and how they will be handled. The SEC panel will then submit its recommendation to the Commission En Banc which will then decide on whether to grant or deny the application — such decision will be considered final. Rejected financing and lending companies may reapply after one year and should demonstrate that the reason for rejection no longer exists.
Further, under the draft guidelines, the OLP license shall have an initial validity of one year from the issuance date, subject to periodical examination and renewal by the SEC.
As for the penalties, financing companies who fail to comply with the conditions of the OLP license will be subject to penalties amounting to P100,000 for the first offense and P200,000 for the second offense. Similarly, lending companies will be subject to penalties of P50,000 and P100,000 for the first and second offense, respectively. For the third offense, the SEC may impose a fine of not less than twice the basic penalty but not more than P1 million; suspension of the OLP license for 60 days; or revocation of the OLP license, as appropriate for each circumstance. The Commission may also impose a daily penalty of P400 and P200 for financing and lending companies, respectively, on top of the basic penalties.
Existing financing and lending companies must also amend their Articles of Incorporation in compliance with the circular within the 180-day period.
The SEC may, at its discretion, set a limit on the total number of OLPs that may be established. The Commission shall take into consideration the total number of applications received, OLPs already existing, and its effects on the industry and the general public.
For further information, the full draft guidelines can be accessed here.