THE Securities and Exchange Commission’s (SEC) proposed rules requiring corporations to reveal their helpful owners are expected to strengthen transparency and governance standards within the Philippines, potentially bolstering investor confidence and market integrity, in accordance with analysts.
“[The proposed rules] would further improve transparency and overall corporate governance standards within the country to further align with global best practices and further protect and uphold the interest of the investing public,” Rizal Business Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a Viber message.
He noted that stronger governance frameworks could enhance the country’s popularity amongst global investors and attract more long-term foreign capital.
The SEC has released for public comment a draft memorandum circular (MC), issued on Oct. 10 and open for feedback until Nov. 9, that seeks to strengthen and make clear rules on helpful ownership disclosure to boost transparency and stop money laundering and corruption.
“The Commission adheres to Republic Act No. 11032 or ‘The Anti-Red Tape Act of 2007’ which declares the policy of the State to ascertain effective practices, aimed toward efficient turnaround of the delivery of presidency services and prevention of graft and corruption in the federal government,” the SEC said.
“It is a timely and far needed reform to combat the usage of corporate vehicles as tools for illegal activities and regulatory evasion,” China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message.
“The proposed latest helpful ownership rules can be an enormous boost for corporate transparency and integrity. In turn, a more transparent corporate and economic system will improve our market’s popularity to each foreign and native investors,” he added.
Under the draft circular, corporations, partnerships, foreign firms, and one-person corporations can be required to offer detailed information in regards to the individuals who ultimately own or control them.
The proposed guidelines categorize helpful owners based on various modes of control or ownership. These include direct ownership of at the least 20% of shares, contractual control, influence over board elections, dominant influence over corporate policies, nominee arrangements, and senior management control when no natural person is otherwise identifiable.
Entities can even be required to keep up accurate and up-to-date records of helpful ownership, including names, addresses, tax identification numbers, nationalities, and ownership percentages. Changes in ownership should be reported to the SEC inside seven days.
The SEC will confirm submissions and has the authority to impose sanctions, including fines and even dissolution, on firms that fail to comply or submit false information.
“If after 15 days from receipt by the Corporation of the Notice and Order from the Commission has lapsed without compliance with the abovementioned, or after a finding by the Commission through its Resolution that the corporation indeed submitted false Helpful Ownership Information, the reporting corporation shall be penalized with a high quality of as much as P2 million, and shall subsequently be dissolved,” the SEC said.
Mr. Colet noted, nevertheless, that having a sound regulatory framework is just step one.
“The most important challenge is to have a powerful culture of compliance and effective enforcement. There are tons of of 1000’s of registered corporations, so the SEC should leverage technology and artificial intelligence (AI) to support the agency,” he said.
“For instance, AI solutions will be developed to assist reply to stakeholder queries, monitor submissions, and spot irregularities. It’s also essential for the SEC to ascertain robust information-sharing mechanisms with foreign counterparts since helpful ownership is typically hidden through offshore firms,” he added
The draft circular also envisions using technology and artificial intelligence to streamline the gathering and storage of helpful ownership data while ensuring adequate data privacy safeguards. — Alexandria Grace C. Magno