BOOST AND BUST
SEC Chairman Emilio Aquino’s agency must constantly strike a balance between protecting the public from fraud while boosting business with just the right regulatory controls and the EODB ethic.
IF you walk past the office of the chairman of the Securities and Exchange Commission, you will find three Emilios. Two of them are Philippine heroes—emilio Jacinto and Emilio Aguinaldo—and the third is the current SEC chairman, Emilio B. Aquino.
The pictures of the two Emilios are hanging at the office of the SEC chairman, in place of those of President Duterte, who forbids government agencies from hanging his picture in their offices.
Jacinto was the youngest Filipino general in the ranks of the revolutionaries against colonial Spain. Aguinaldo, on the other hand, was the country’s first and youngest President at 29.
SEC Chairman Aquino, too, started his career at a young age. He was the youngest director to lead the agency’s unit then called the Prosecution and Enforcement and Non-traditional Securities and Instruments departments.
“As early as my kindergarten days, I would say that I will be a lawyer someday. My becoming a CPA [certified public accountant] was considered a stepping stone toward my vision to be a lawyer. And now my being a CPA pays good dividends in my present position,” Aquino said.
Nemesis of scammers
AQUINO is the first CPA and lawyer to lead the agency, qualifications that, along with his previous
experience with the corporate watchdog, are both needed to run after fraudsters. And run them down is something he is determined to do.
These scammers are becoming more and more cunning as many people are now glued to their smart phones or computer screens at home due to the lockdown measures.
“Technology and innovation are a constant bane and boon to all of us. We know that both technology and innovation have their light and rosy side. Yet, we also have to beware the accompanying darker underside which provides challenges to everyone,” he said.
Aquino admitted that cryptocurrencies and other innovative securities easily come to mind when it comes to technological challenges of the agency, along with other cybersecurity concerns for the corporates.
Cryptocurrencies and other innovative securities, such as the digital assets and similar other things that are still to be invented, may not necessarily be illegal, but a new type of investment scheme is constantly cropping up enough to keep the SEC personnel on their toes, their ears firmly on the ground. The attitude is mixed because each new “invention” is a potential tool for fraud, but also part of the push for financial inclusivity.
“We will establish an innovation hub called the Fintech Innovative Instruments and Exchanges, or Fintex Office, to address these fintech concerns. We want technology to flourish. What we watch out for is the misconduct of those behind the technology,” Aquino said.
Scams have always been a part of life, the most notorious dating back to more than a century. Only the company name changes, but the scheme remains the same.
The most common framework for ever-evolving means for fraud is the Ponzi scheme, named after Charles Ponzi, an Italian swindler who carried out his scheme in the United States. Its basic premise is to rob Peter to pay Paul. It first lures investors for their money, but it pays profits to earlier investors and the owner of the scheme with funds from more recent investors.
Akin to the Ponzi scheme is the pyramid scheme, which the organization can collapse even faster, as it encourages one to recruit at least two, but those two will also have to recruit two, and on and on, until they form a pyramid.
EODB vs consumer protection
AQUINO admits that the agency faces a dilemma of sorts, being bound by the ease of doing business (EODB) program which mandates it to approve new company registrations as quickly as possible, while balancing this with investor protection.
A lot of scammers use the SEC’S Certificate of Registration documents, flaunting these to the public to scam people.
The regulator has an interesting “strategy” for balancing the EODB and anti-red tape requirements with the duty to protect the public from swindlers. Since “only 5 percent of the 100 are [not] legitimate anyway,” the SEC’S usual move is, “we just approve the entire 100 percent [of company registration] and just run after the questionable 5 percent.”
The running after has to be done quickly, he explains, in order to prevent people from being gypped. “From the moment we get reports, from the moment we get emails, inquiries and complaints, immediately we shoot down those firms who are being used by unscrupulous groups,” he said.
“Somehow our kababayan, due to financial hardships and difficulties, no longer mind robbing Peter to pay [Paul] or themselves, their rent. So it’s not even greed. The challenge is for us to address that,” he said.
Investors can also be blamed, however, as some of them know at the back of their minds that the returns are too good to be true but just take the risk anyway, he said.
“We issued a CDO [cease and desist order] against an investment scam which, under their roulette program, allows an investor to double his money in a day, 30 or 45 days. Evidently, it’s a scam because no legitimate business can give you that kind of a return. But some of our kababayan, due to financial difficulties, no longer mind [the risk involved],” he said.
Aquino was referring to its move to prevent Chiyuto Creative Wealth Documentation Facilitation Services from operating as it uses a double-your-money roulette game.
Financial literacy
THE SEC chairman believes that the only way to prevent scams from happening is embodied in two words: financial literacy.
“We embarked on massive investor education, tapping vloggers and celebrities. We are reaching over 600,000 [people]. I will be creating an Office on Investor Education just to address this growing problem in this time and age,” he said.
“Enforcement sweep, we also do that regularly. We’d rather be proactive, preventing the victim from parting with his money in favor of the fraudsters. But the best is financial literacy. On the other hand, we don’t wait for complaints to come in.”
Investor education is also the SEC’S answer to the growing number of individual investors who are trading in the stock market, which replaced the hot money of the foreign institutional players. Foreign funds previously took in more than half of the trade at the Philippine Stock Exchange. But due to the pandemic, a hefty part of that has left emerging markets such as the Philippines.
Since the start of 2021, daily foreign transactions at the PSE only comprise less than a quarter of the trade and the rest are from retail, a trend seen around the world.
That may sound like a boon to the market such as the Philippines with a low savings rate, but a deluge of trading activity from retail investors is clogging the system of some of the stock brokers, causing them to stop accepting new clients at least for the next six months.
Conrado F. Bate, president and CEO of COL Financial Group Inc., said they started to limit the number of new clients at the start of the year and completely halted to accept new ones in January as activity surged by at least five times.
COL has the most number of individual investors among the local online stock brokers in the country. It has about 404,000 customer accounts as of September with net equity of P78.45 billion.
“We’ve been looking at certain assumptions at the start of the year and all that has been thrown away. We’re seeing volume that we have not expected to happen in a couple of years and it is happening today. Some of us [stock brokers] have stopped accepting new accounts because it is not helping. If
you get into these new accounts... they are very active and that’s causing system to clog,” he said.
“We normally have 40,000 new customers a year. We more than doubled it last year. I know it’s not a big number but the behavior of the people [is] much different in the past,” he said.
Most of these individual investors are going for the cheap but speculative stocks, causing the PSE to issue several inquiries for the unusual price movement of several stocks, such as the mining firms and other shell companies, over the past month.
Aquino said the SEC was compelled to sustain its financial literacy program that it previously was doing only on a tentative basis.
“We created the Capital Market Promotions Inter-agency Network or CAMPAIGN. We entered into agreements with our network partners to help us in pursuing our financial education program,” he said.
The top corporate regulator admitted much more needs to be done to achieve his goal outlined in what the SEC called Super Vision 2025, a set of achievable goals by the time he steps down as the chairman of the agency.
The pandemic, he said, is one of the biggest stumbling blocks to achieving the agency’s self-imposed targets.
“We contributed substantially to the anti-covid war chest with P2 billion. Those were intended for our new building and IT programs. On the other hand, the pandemic was the great reset; it led everyone including our neighbors back to square one,” he said.
“We aimed to be among the best in the Southeast Asian Region in our Super Vision 2025. Since everybody is starting all over, we stand a good chance making a good finish by 2025. Deepening the depth and breadth of the capital markets is what we need to be in the game. We are eyeing more SME [small and medium enterprises] and REITS [real-estate investment trust] listings. We should do more enforcement work as well,” Aquino said.
To catch scammers, deal with the lending companies and deepen the capital market—all at the same time and during the coronavirus pandemic at that— Aquino and the SEC will need the right strategy to win the battle. Each time he walks down the SEC halls, he may be looking to his two namesakes for inspiration in waging this modern war.