An individual or entity wanting to do business in the Philippines would typically be dealing with certain government agencies to facilitate its business activity, whether in its startup stage or in ensuring its continuous operations, in case it is already operational. For individuals, the Department of Trade and Industry (DTI) is the primary government agency that is tasked with facilitating trade, industry and other investment activities in the Philippines. The Board of Investments, which is part of the DTI, is tasked to regulate and promote investments in the Philippines. On the other hand, relevant to partnerships and corporations is the Securities and Exchange Commission (SEC) which has jurisdiction and supervision over all corporations, partnerships, or associations which are grantees of franchises or licenses issued by the Philippine government to operate in the Philippines.
However, for certain industries in which the public are largely invested in, or those imbued with public interest, specific regulatory agencies are specially created to enhance the industries’ reliability and integrity. For one, banking and quasi-banking industries are under the supervision and regulation of the Bangko Sentral ng Pilipinas (BSP); designated non-financial businesses and professions (DNFBPs) including casinos and real estate brokers are regulated by the Anti-Money Laundering Council (AMLC); securities trading are specially regulated by the SEC in accordance with the Securities Regulation Code; and certain persons are regulated by the Bureau of Internal Revenue (BIR) with respect to the payment and collection of national internal revenue taxes.
This article will discuss the respective roles of different regulatory agencies which individuals/investors should know if they intend to engage in specialized industries in the Philippines. This would essentially help them understand what regulatory agencies cover them, and eventually guide them to properly comply with the relevant regulatory requirements.
The Bangko Sentral ng Pilipinas
The Bangko Sentral ng Pilipinas (BSP) is an independent central money authority which acts as a body corporate, the primary objective of which is to maintain price stability conducive to a balanced and sustainable growth of the economy and employment, and maintain monetary stability and the convertibility of peso.
The BSP provides for policy directions in the areas of money, banking, and credit. It has the power of supervision over banking operations and has regulatory and examination powers over quasi-banking operations of non-bank financial institutions, in accordance with the New Central Bank Act.
The banking industry is considered one of those industries imbued with public interest, and thus, its regulation is of utmost importance to protect the general public. In Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation, G.R. No. 179901 (2008), the Supreme Court explained further the rationale for the regulation of the banks:
Banks are entities engaged in the lending of funds obtained through deposits from the public. They borrow the public's excess money (i.e., deposits) and lend out the same. Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments.
Banks operate and earn income by extending credit facilities financed primarily by deposits from the public. They plough back the bulk of said deposits into the economy in the form of loans. Since banks deal with the public's money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate governance.
Protecting the integrity of the banking system has become, by large, the responsibility of banks. (Citations omitted.)
The powers and functions of the BSP is exercised by the Monetary Board composed of the Governor, who is the Chairman of the Monetary Board, a member of the Cabinet, and five members from the private sector, all of whom may not be re-appointed.
Among the supervisory activities of the BSP include:
- Requirement for additional reports from BSP-supervised financial institutions (BSFIs) to facilitate further monitoring by the BSP of emerging or key supervisory concerns, and/or in aid of industrywide studies or surveillance;
- Meeting with pertinent stakeholders such as the Board/Senior Management, Independent Directors, Internal Auditor/Audit Committee, External Auditor and Home Regulator (for branches of foreign banks);
- On-site examinations which may take the form of overseeing, regular examination, special examination, or thematic review; and
- Periodic risk assessments.
Other laws pertinent to banking and quasi-banking institutions include the General Banking Law of 2000 which provides for the regulation of organization and operations of banks, quasi-banks, and trust entities; the Bank Secrecy Law, which prohibits the disclosure of or inquiry into deposits with any banking institutions; and the Foreign Currency Deposit Act which institutes a foreign currency deposit system in the Philippines.
The Anti-Money Laundering Council
In relation to the regulation of banks and other financial institutions by the BSP, the Anti-Money Laundering Council (AMLC) was created by the Anti-Money Laundering Act (AMLA), primarily to implement the mandates of the State to protect and preserve the integrity and confidentiality of bank accounts and to ensure that the Philippines is not used as a money laundering site for the proceeds of any unlawful activity.
However, it is important to note that banks and other quasi-banks are not the only institutions covered by the AMLC, for the latter even covers the so-called designated non-financial business and professions (DNFBPs), which include, casinos, real estate brokers, lawyers, and accountants performing certain functions.
Among the duties of the AMLC expressly provided under the AMLA, as recently amended by Rep. Act No. 11521, which took effect on 8 February 2021, include the following:
- To investigate suspicious transactions and covered transactions deemed suspicious after an investigation by the AMLC, money laundering activities and other violations of the AMLA;
- To require and receive covered or suspicious transaction reports from covered persons;
- To institute civil forfeiture proceedings and other remedial proceedings through the Office of the Solicitor General;
- To cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses;
- To apply before the Court of Appeals, ex parte, for the freezing of any monetary instrument or property alleged to be laundered;
- In the conduct of its investigation, to apply for the issuance of a search and seizure order with any competent court;
- To implement targeted financial sanctions in relation to proliferation of weapons of mass destruction and its financing, including ex parte freeze, without delay, against all funds and other assets that are owned and controlled, directly or indirectly, including funds and assets derived or generated therefrom; and
- To preserve, manage or dispose assets pursuant to a freeze order, asset preservation order, or judgment of forfeiture.
The Securities and Exchange Commission
The SEC is the national government regulatory agency charged with the supervision of the corporate sector, capital market participants, the securities and investment instruments market, and the protection of the investing public.
In connection with the SEC’s duty to supervise and regulate all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government, the SEC has also the power to approve, reject, suspend, or revoke registration and licensing applications, and to impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant to its regulatory powers.
Moreover, the SEC has the power to formulate policies and recommendations on issues concerning the securities market, in accordance with the Securities Regulation Code. In the concurring opinion of former Associate Justice Dante Tinga in Securities and Exchange Commission v. Interport Resources Corp., G.R. No. 165808 (2008), the importance of the securities market is highlighted, thus:
The securities market, when active and vibrant, is an effective engine of economic growth. It is more able to channel capital as it tends to favor start-up and venture capital companies. To remain attractive to investors, however, the stock market should be fair and orderly. All the regulations, all the requirements, all the procedures and all the people in the industry should strive to achieve this avowed objective. Manipulative devices and deceptive practices, including insider trading, throw a monkey wrench right into the heart of the securities industry. When someone trades in the market with unfair advantage in the form of highly valuable secret inside information, all other participants are defrauded. All of the mechanisms become worthless. Given enough of stock market scandals coupled with the related loss of faith in the market, such abuses could presage a severe drain of capital. And investors would eventually feel more secure with their money invested elsewhere.
The securities market is imbued with public interest and as such it is regulated. Specifically, the reasons given for securities regulation are (1) to protect investors, (2) to supply the informational needs of investors, (3) to ensure that stock prices conform to the fundamental value of the companies traded, (4) to allow shareholders to gain greater control over their corporate managers, and (5) to foster economic growth, innovation and access to capital.
In checking securities fraud, regulation of the stock market assumes quite a few forms, the most common being disclosure regulation and financial activity regulation.
Disclosure regulation requires issuers of securities to make public a large amount of financial information to actual and potential investors. The standard justification for disclosure rules is that the managers of the issuing firm have more information about the financial health and future of the firm than investors who own or are considering the purchase of the firm's securities. Financial activity regulation consists of rules about traders of securities and trading on or off the stock exchange. A prime example of this form of regulation is the set of rules against trading by insiders. (Citations omitted.)
SEC regulations with regard to market securities aim to protect every stakeholder no matter how large or small their investments are. These investors may be aware of the various risks they take in investing in certain shares of stocks, nonetheless, the hard-earned money that they invest in still need to be protected from unscrupulous individuals wanting to take ahead in the investment arena by making use, to their advantage, of information not available to the investing public who then are placed at a disadvantage.
The Interplay of BSP and SEC Regulations
In Justice Panganiban’s introductory statement in Union Bank of the Philippines v. Securities and Exchange Commission, G.R. No. 138949 (2001), he highlighted that the mere fact that a bank, in regard to its banking functions, is already subject to the supervision of the BSP does not exempt the former from reasonable disclosure regulations issued by the SEC. According to him, these regulations—imposed on a bank as a banking institution listed in the stock market—are meant to assure full, fair, and accurate information for the protection of investors. Imposing such regulations is a function within the jurisdiction of the SEC.
Therefore, banks and other quasi-banks, which stocks are also listed in the stock exchange, aside from complying with the relevant regulations by the BSP, are likewise mandated to comply with the requirements imposed upon it by the SEC with regard to their shares of stocks.
The Bureau of Internal Revenue
The BIR, which is under the control and supervision of the Department of Finance, has the powers and duties to assess and collect all national internal revenue taxes, fees, and charges, in accordance with the National Internal Revenue Code (NIRC) of 1997, as amended, to enforce all forfeitures, penalties, and fines connected therein, and to execute judgments in all cases decided in its favor.
The BIR is headed by the Commissioner of Internal Revenue (CIR) and four Deputy Commissioners. Aside from those already mentioned, the CIR is likewise expressly vested with the power to obtain information and summon, examine, and take testimony of persons to, among others, ascertain the correctness of any return, determine the liability of any person for any internal revenue tax and thereafter collect the same, and evaluate tax compliance.
Under the Third-Party Information program, the BIR can access the records of the taxpayers' customers or suppliers to confirm accuracy of the declared sales or purchases in the tax returns. This is an increasingly powerful and cost-effective way to discover many instances of underreporting.
Just recently or on 17 January 2023, Revenue Memorandum Circular (RMC) 6-2023 was issued by the BIR. RMC 6-2023 circularizes the National Privacy Commission Advisory Opinions upholding the authority of the BIR, in the performance of its tax enforcement, assessment and collection functions, to obtain personal and sensitive personal information from any person, including from any office or officer of the national and local governments, government agencies and instrumentalities and Government-Owned or -Controlled Corporations, pursuant to Section 4(e) of Rep. Act No. 10173, or the Data Privacy Act (DPA) of 2012, in relation to Section 5(B) of the NIRC, as amended.
Accordingly, in preparing access-to-records letters to taxpayers and/or third parties involving personal and sensitive personal information, all internal revenue officials/employees concerned must include as legal bases thereof Section 4(e) of the DPA of 2012, aside from Section 5(B) of the NIRC, as amended.
For any legal assistance you may need, you may send your inquiries and other legal concerns to info@gqlaw.com.ph.