SEC getting more teeth vs crypto, online scammers

The Securities and Exchange Commission (SEC) has drafted, for public comment, the Implementing Rules and Regulations (IRR) of Republic Act No. 11765, or the Financial Products and Services Consumer Protection Act (FCPA) which also covers digital products and cryptocurrencies.

In a statement, the Commission said “The draft IRR will operationalize the newly signed law that aims to protect the interests of financial consumers by strengthening the country’s financial regulators by providing them with rule-making, surveillance, inspection, market monitoring, and more enforcement powers.”

The measure was signed into law on May 6, 2022 as part of efforts to ensure that mechanisms in line with global best practices are in place to protect consumers of financial products and services.

The SEC, as well as the Bangko Sentral ng Pilipinas (BSP) and Insurance Commission (IC), have the authority to issue its own standard and rules for the application of the provisions of the new law within its jurisdiction.

The draft rules will cover 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.

The proposed guidelines provide that securities, beyond their definition under Section 3.1 the Securities Regulation Code (SRC), shall include “tokenized securities products,” or those which grew with the abstraction of key characteristics from cryptocurrency’s underlying distributed ledger technology to apply in the traditional financial sector.

The draft rules expand the enforcement actions that may be conducted by the SEC, which shall include the restriction on the ability of the financial service provider to collect excessive or unreasonable interests, fees, or charges; disqualification and/or suspension of directors, trustees, officers, or employees; imposition of fines, suspension or penalties; issuance of cease and desist orders; suspension of operation; and disgorgement.

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 draft IRR authorizes the Commission to 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.

The proposed rules likewise seek 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 words “Investment Adviser” or “Financial Adviser” or variations thereof, unless they are registered with the Commission.

The SEC will be issuing a separate memorandum circular on the regulation of investment advisers. All persons acting as investment advisers will be required to register with the Commission within 90 days from the issuance of such rules.

The draft guidelines will require financial service providers to integrate a Consumer Protection Risk Management System (CPRMS) into its enterprise-wide risk management processes and risk governance framework.

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.

The draft rules will further provide additional protection to financial consumers by requiring financial service providers to continuously evaluate their financial products or services to ensure that they are appropriately targeted to the needs, understanding, and capacity of both their markets and their clients.

To ensure the client’s full awareness of a financial product, the SEC may require financial service providers to adopt and implement a clear cooling-off policy, under which the financial consumer will be allowed time to consider the costs and risks of a financial product or service, free from the pressure of the sales team of the financial service provider.