SEC MATTERS

ON February 19, the Securities and Exchange Commission (SEC) released for public comment the draft implementing rules and regulations (IRR) of Republic Act 11523, or the “Financial Institutions Strategic Transfer Act” (FIST). President Rodrigo Duterte signed the law three days earlier to cushion the “serious economic setbacks and tremendous financial pressure on markets and industries” caused by the Covid-19 pandemic, and allocate available resources to the most affected and vulnerable sectors.

The draft IRR — which was prepared by the SEC as FIST’s primary implementing agency, along with inputs from the Bangko Sentral ng Pilipinas (BSP), Bureau of Internal Revenue and National Economic and Development Authority — will execute the law in creating a corporation that invests in or acquires nonperforming assets (NPAs) of financial institutions, including banks, lending and financing companies, and investment houses.

Allow me to mention some salient features of the draft IRR:

– A FIST corporation (FISTC) shall be organized as a stock corporation other than a one-person corporation (Rule 4, Draft IRR, FIST). It shall have a minimum authorized capital stock of P500 million, of which P125 million shall be subscribed and at least P31.25 million paid up in cash (Rule 7).

– An FISTC shall be classified as corporations vested with public interest. As such, it shall have independent directors on its board, appoint a compliance officer, submit compensation and performance reports, and comply with other requirements prescribed by law (Rule 4). Applications to establish and register an FISTC shall be filed with the SEC within 36 months from FIST’s effectivity (Rule 6).

– Under FIST, only the BSP, banks, pawnshops, nonstock savings and loan associations (NSSLAs), and nonbank credit card issuers and other credit-granting institutions supervised by the central bank; financing companies, lending companies and accredited microfinance nongovernment organizations (NGOs); investment houses; insurance companies; and select government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs) may transfer NPAs to FISTCs.

The covered GOCCs and GFIs are the Philippine Deposit Insurance Corp., Land Bank of the Philippines (LandBank), Development Bank of the Philippines (DBP), National Home Mortgage Finance Corp., Philippine Guarantee Corp., Home Development Mutual Fund, Social Security System, Government Service Insurance System, Small Business Corp. and National Housing Authority.

– The assets should have become nonperforming on or before Dec. 31, 2022 (Rule 12 [b]). They may be, as defined, nonperforming loans, which include receivables and restructured loans whose principal and/or interest have remained unpaid for at least 90 days after they have become past due or have defaulted under the loan agreement (Rule 3).

– A financial institution that intends to transfer NPAs to an FISTC shall apply for the eligibility of these assets in the prescribed format, with the appropriate regulatory authority for each transfer (Rule 12 [b]). The certificate of eligibility shall be issued by the Department of Finance, in the case of GOCCs and GFIs, other than LandBank and DBP; the BSP, in the case of banks and other credit-granting institutions under its supervision; the Monetary Board or its designated authority, in the case of the BSP; the Insurance Commission, in the case of insurance companies; and the SEC, in the case of financing and lending companies, accredited microfinance NGOs, and investment houses, except their trust and quasi-banking functions, or any qualified entity not under the DoF or BSP (Rule 3 [b]).

– All sales or transfers of NPAs to an FISTC shall take on the nature of a true sale, where the transferor transfers the full legal and beneficial title to and relinquishes effective control over the assets, and that these assets are legally isolated and put beyond the reach of the transferor and its creditors (Rule 3 [w]).

– An FISTC may issue investment unit instruments (IUIs) to any qualified buyer in the minimum amount of P10 million (Rule 11), pursuant to a plan submitted to the SEC and issued with a certificate of permit to sell securities or an offer to do so. The plan shall include the investment policies of the FISTC; features of the IUIs, including the specific amounts (to be) issued, rights of the IUI holders; and methods to liquidate and distribute assets to them. (Rule 8).

With the draft IRR in place, we at the commission anticipate the role of banks and other financial institutions as mobilizers of savings and investments and in providing the needed financial system liquidity to keep the economy afloat. Ultimately, we hope to realize their potential in advancing economic growth and financial stability by developing and maintaining a sound financial sector, thereby providing more investment opportunities to Filipinos amid the pandemic.

I encourage the public to check the full details of the draft IRR at www.sec.gov.ph.