Philippines

Screen Shot 2018-03-13 at 12.29.11 PMBy Leia Clarissa Veronica R Veracruz, ACCRA Law

Email: crveracruz@accralaw.com

 

 

Crowdfunding (CF) platforms have proven to be a popular way to solicit charitable donations and to raise funds for projects or business ventures. With CF platforms, access to funds has expanded for start-up companies and for micro, small and medium enterprises.

In line with this developing financial innovation, the SEC proposes to regulate CF activities in the Philippines and released its proposed rules and regulations governing CF (Rules) for public feedback. The proposal to regulate CF activities in the Philippines is consistent with the direction taken by other countries, such as the US, Canada and Singapore, which have already established regulations on CF transactions.

The Rules attempt to strike a balance between the dual responsibilities of the SEC to encourage capital formation and to protect investor interests.

To encourage capital formation and in view of the limited character of the public offering through CF, the Rules grant exemption for securities sold or offered through CF from the registration requirement under Section 12 of the Securities Regulation Code (SRC).

On the other hand, to protect investor interests, the SEC incorporated disclosure requirements, registration requirements for intermediaries and funding portals, regulatory framework for intermediaries and post-registration requirements for issuers and intermediaries in the Rules, among others.

Disclosure requirements
Those looking to raise funds (Issuer) will be required to disclose, among others, the nature of their business, financial condition, historical reports of operations, the business plan with respect to the CF offering, the risk factors of investing in its projects, the procedure on how to return funds if the target offering is not met and the procedure to complete or cancel investment commitments.

Registration requirements
Entities that facilitate transactions involving the offer or sale of CF securities through online electronic platforms will be required to register as a Funding Portal.

An applicant Funding Portal, which should be registered with the SEC as a corporation and must have at least Ps50,000 equity, must submit: (i) Registration Statement with information on the principal place of business, legal status and disciplinary history, business activities and types of compensation received by the funding portal, and website address/es; (ii) account opening and disclosure rules; and (iii) business conduct rules.

Entities that mediate in the offer or sale of CF securities will be required to file an application with the SEC and to register as Intermediary.

Only securities brokers registered in accordance with Section 28 of the SRC, investment houses as defined under the Investment Houses Law, and funding portals registered in accordance with Section 30 of the Rules, are eligible to file an application with the SEC and engage as Intermediary in CF transactions.

To register as Intermediary, eligible entities must signify their intention to conduct activities of CF Intermediary and must be able satisfy the criteria set under the Rules.

Regulatory framework for intermediaries
Under the Rules, Intermediaries will be required to: (i) provide investors educational materials; (ii) take measures to reduce the risk of fraud; (iii) provide communication channels to permit discussions about offerings on the platform; (iv) comply with maintenance and transmission of funds requirements; and (v) comply with completion, cancellation and reconfirmation of offerings requirements.

Continuing reporting requirements
Issuers will be required to periodically file with the Commission an annual report on all its CF transactions, the relevant CF Forms within five business days: (i) after the Issuer reaches 50 percent and 100 percent of the target offering amount; (ii) after the Issuer accepts proceeds in excess of the target offering amount; and (iii) after the offering deadline, a disclosure on the total amount of securities sold in the offering.

Intermediaries will be required to keep and maintain records related to CF transactions, which include information related to investors and issuers, records of all communications that occur on or through its platforms, and all daily, monthly and quarterly summaries of transactions effected through the funding portal.

Burdensome and high-cost of compliance
As opposed to traditional, exempt, private placement transactions, which require one-time submission of Form 10.1 (Notice/Confirmation of Exemption) with the SEC, Issuers in CF offerings would have to continuously comply with the Continuing Reporting Requirement and incur costs for the same.

Considering the heavier regulatory burdens and higher compliance costs, in conjunction with the Ps10 million cap on the amount that can be raised through CF, the Rules may create an unintended consequence of disincentivising companies from using CF.

Understandably, the SEC has placed the foregoing requirements to protect the interest of ordinary investors. However, the Rules may have to be revisited to achieve the original intention of providing simple and alternative financing access to start-up companies, without sacrificing the interest of the investing public.

(This article first appeared in Business World, a newspaper of general circulation in the Philippines)

 

ACCRALAW LOGO

 

 

 

 

http//: www.accralaw.com

Email: crveracruz@accralaw.com

Tel: (632) 830 8000

Related Articles by Firm
A peek into the revised Corporation Code of the Philippines
On February 20, 2019, President Rodrigo Duterte signed into law Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines (the New Code) ...
Philippines: Protecting indigenous knowledge systems and practices in intellectual property rights registration
Indigenous peoples (IPs) and indigenous cultural communities (ICCs), though explicitly protected under the constitution itself, sadly remain one of the most marginalised and forgotten sectors in Philippine society ...
Philippines: The right to know – Freedom of information in the Supreme Court
Freedom of Information is a right enshrined in our fundamental law ...
Investments for the environment
In a recent report released by the leading international body for assessment of climate change, the UN Intergovernmental Panel on Climate Change (UN IPCC), established a target global warming limit of 1.5°C ...
The PCC’s Joint Venture Guidelines
The Philippine Competition Commission must strive to strike a balance ...
How the Mental Health Act affects employees
Mental health conditions, which include anxiety and panic disorders, depression, eating disorders, substance abuse and addictions, have become a pervasive issue which permeates our present society ...
The Ease of Doing Business Act tapers red tape
RA 11032 is a welcome step towards achieving the quality government services that Filipinos deserve.
Much EndO about nothing
President Duterte says he has put an end to the “Endo” or the practice of engaging employees on a contractual basis. But has he?
Virtual currency in the Philippines: Recognition and regulation
Bitcoin is essentially a virtual currency (VC), which is any type of digital unit that is used as a medium of exchange — a veritable currency that exists in the digital world. Since it is electronic currency, VC is easily transferable ...
Protection of women employees in the Philippines
According to the World Economic Forum’s Global Gender Gap (GGG) Report conducted in 2016, the Philippines is the most gender-equal country in the Asia-Pacific region, having closed nearly 79 percent of its gender gap ...
Anti-Trust & Competition: Philippines - Towards robust yet balanced competition in the Philippines
The state of Philippine competition regulation has been slowly taking shape barely over two years after the passage of the Philippine Competition Act (RA 10667) ...
PHILIPPINES: The internet and doing business in the Philippines
Earlier this year, the Philippines Securities and Exchange Commission (SEC) issued an opinion stating that an online gaming system with absolutely no physical presence in the Philippines shall be considered as “doing business” in the Philippines and was thus required ...
Philippines: Psychological disorders in the workplace
The problem of mental health presents a particular conundrum under labour relations and standards ...
Clarifying the role of contractors and subcontractors
Recent changes to labour laws in the Philippines attempt to clarify the status of contractors and subcontractors in certain industries ...
Fake news and its web of legal issues in the post-truth era
Oxford Dictionaries’ Word of the Year for 2016 is “post-truth” — an adjective defined as “relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief”. ...
Dollar-denominated securities in relation to Corporation Code’s provisions on capital
The Philippines Stock Exchange (PSE) issued rules on December 2, 2016 governing the listing, trading and settlement of US dollar-denominated securities (DDS)....
Cyber bullying in the Philippines
The pen is mightier than the sword or so the adage goes. When this was once said, it was to highlight the power of thoughts and ideas over brute force and violence as a way to effect change. Today, the ...
Uber/GrabCar drivers: Independent contractors or employees?
The buzz about the legality of Uber and GrabCar operating in the Philippines might have died down, but now there is another legal issue surrounding them: whether their drivers are employees or ...
Price fixing in the context of the Philippine Competition Act
In light of the enactment of the Philippine Competition Act (PCA) in 2015, competitors, manufacturers, retailers and sellers or suppliers, in general, should be ...
Implementation of the data privacy act in Philippines now in full swing
Since 2012, the Philippines has had a comprehensive law governing personal data privacy. However, full implementation ...
Taxability of service fees received by non-resident foreign companies from online advertising in the Philippines
The use of the internet for the promotion of goods and services, particularly social media (Facebook, Twitter and ...
Levelling the playing field in the Philippines
Before the enactment of the Philippine Competition Act in 2015, the Philippines was the only founding member of Asean that did not have a comprehensive competition law in place. Francisco Ed Lim, Patricia-Ann T Prodigalidad, Eric R Recalde of <...
Age discrimination in the workplace
Republic Act No. 10911 (also known as the ‘Anti-Age Discrimination in Employment Act’) lapsed into law on 21 July ...
Green jobs: greening the Philippine labour sector
With the threat of climate change, the international community created the Paris Agreement which aims to stop global warming and preserve ...
Interplay of domestic law on compulsory licensing and international agreements on medicine prices
The price of pharmaceutical products in the Philippines appears to be on the high side compared to that in other Asian ...
Restrictive covenants in employment contracts
One of the means of keeping afloat in today’s competitive market is to hire employees who are ‘fit’ for a particular job. However, before employers ...
Make our system work: litigation practice expedited
The perception that litigation is a slow and arduous process has drawn many of us closer to the idea of alternative modes of dispute resolution. ...
Department of Labor and Employment (DOLE) Department Order No. 18-A: The Rules and Regulations on Contracting
On December 4, 2011, Department of Labor and Employment (DOLE) Department Order No. 18-A (D.O. 18-A), the new Rules Implementing Articles 106 to 109 ...
An overview of Philippine Data Privacy Law
Republic Act No. 10173, or the Philippine Data Privacy Act of 2012 (RA10173), was signed into law on August 15, 2012. This is the ...
New competition law for the Philippines
The Philippine Competition Act (PCA) went into effect on August 5, 2015. The law applies not only to acts committed in the Philippines but ...
Related Articles
#MeToo and the legal impact on India Inc
Indian corporations are becoming increasingly mindful of sexual harassment in the workplace.
A journey from traditional working practices to a flexible workplace
Policies that let employees work remotely can improve productivity and reduce staff turnover.
A closer look at Canada’s budget
Fasken’s team examines important budget 2019 measures — some which made headlines, and others that should not escape notice.
Related Articles by Jurisdiction
Joint Venture Agreements with Philippine Local Government Units as Public-Private Partnership Modality
The Duterte Administration is poised to fund its aggressive infrastructure program internally and through official development assistance ...
Non-bank credit card issuers subject to new Bangko Sentral Regulations
To ensure that credit card issuers have the capacity to deliver services efficiently and securely, management must implement appropriate risk management and control systems.
A peek into the revised Corporation Code of the Philippines
On February 20, 2019, President Rodrigo Duterte signed into law Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines (the New Code) ...
Latest Articles
A 'return' to private practice
Three experienced Asia-based lawyers spoke to Tim Gilkison about their 'return' to private practice, and how to make a successful transition ...
Lubis Ganie joins KPMG alliance
The Indonesian law firm has joined KMPG’s global legal network.
#MeToo and the legal impact on India Inc
Indian corporations are becoming increasingly mindful of sexual harassment in the workplace.