2018 IRR of Investment Company Act

SEC MC No.33 s2020

RULE 1 – Definition of Terms

The term ‘CIS’ in the Philippines may either have a corporate structure such as an investment company or a contractual structure such as a Unit Investment Trust Fund or similar scheme held by a trust corporation or separate account fund established pursuant to a variable unit linked life insurance policy issued by an insurance company and such other forms of collective investment schemes as may be determined by the appropriate government regulatory agencies such as the Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), and Insurance Commission (IC).

RULE 3.3 (d) (e) and (h)

d. Feeder Fund – shall refer to an MFC that invests at least ninety percent (90%) of its net assets in a single CIS established by another Fund Manager, asset management company or fund operator, which shall not be a feeder fund.

e. Fund-of-Funds – shall refer to an MFC that invests at least fifty percent (50%) of its net assets in more than one (1) CIS established by another Fund Manager/s, asset management company/ies or fund operator/s.

h. Multi-asset/Asset Allocation Fund - shall refer to an MFC that invests in a fixed or variable mix of both equity and fixed income instruments, as well as cash and cash-equivalents.

d. Feeder Fund – shall refer to an investment company that invests at least ninety percent (90%) of its net assets in a single CIS established by another Fund Manager, asset management company or fund operator, which shall not be a feeder fund.

e. Fund-of-Funds – shall refer to an investment company that invests at least fifty percent (50%) of its net assets in more than one (1) CIS established by another Fund Manager/s, asset management company/ies or fund operator/s.

h. Multi-asset/Asset Allocation Fund - shall refer to an investment company that invests in a fixed or variable mix of both equity and fixed income instruments, as well as cash and cash-equivalents.

RULE 3.4 (f) and (j)

f. It shall have a minimum subscribed and paid-up capital of Fifty Million Pesos (₱50,000,000.00). The Commission may grant a request for lower paid-in capital requirement if the Investment Company is one of or part of a group of investment companies to be created or already in existence to be managed or under management by the same Fund Manager with a track record of at least five years as such and provided that the subscribed and paid-up capital shall not be lower than One Million Pesos (P1,000,000.00).

j. An investment company shall not be required to comply with the minimum subscribed and paid–up capital relative to the increase in its authorized capital stock.

f. It shall have a minimum subscribed and paid-up capital of Fifty Million Pesos (₱50,000,000.00).However, if the investment company is one of or part of a group of investment companies to be created or already in existence to be managed or under management by the same fund manager with a track record of at least five years, the minimum subscribed and paid-up capital shall not be lower than One Million Pesos (₱1,000,000.00) provided an affidavit must be submitted stating such track record of the fund manager.

j. An investment company shall not be required to comply with the minimum subscribed and paid–up capital relative to the increase in its authorized capital stock provided the minimum subscribed and paid-up capital under Rule 3.4 (f) or any of its amendments is complied with.

RULE 5.1.1 (a,i)

i. Paid-up capital of at least Fifty Million Pesos (₱50,000,000.00) exclusive of revaluation surplus, unrealized gain in value of non-current investments, deferred income tax and other capital adjustments as may be required by SEC. Provided further that the Fund Manager shall be required to have an additional unimpaired capital requirement of 0.02% of the excess of One Hundred Billion Pesos (₱100,000,000,000.00) of the total AUM, which additional capital infusion shall be made within 30 days after the end of the fiscal year the AUM increased.

i. Paid-up capital of at least Fifty Million Pesos (₱50,000,000.00) which shall remain unimpaired at all times, provided the fund manager shall be required to have an additional unimpaired capital requirement of 0.02% of the excess of One Hundred Billion Pesos (₱100,000,000,000.00) of the total AUM, which additional capital infusion shall be made within 30 days after the end of the fiscal year the AUM increased. However, the amount of additional capital requirement is capped at Php1 Billion.                                            

RULE 5.1.2 (c)

g. Ensure that all assets of the investment company are deposited with an independent custodian.

The participants should be given the option to request for hardcopy accounts and reports within one month from the notification of the availability of the accounts and reports. The fund manager should cause to be made available, hardcopies of the accounts and reports to any participant who provides a written request thereof within ten (10) business days from the date of request or whenever practicable in case of any fortuitous event and other circumstances upon notification by the fund manager of such fortuitous event to the Commission through a Current Report. Participants should also be allowed at any time to opt for hardcopies for all future reports and accounts.

g. Ensure that all assets of the investment company are deposited with an independent custodian except those which cannot be placed in the custody of the custodian such as:

1. Investments in deposits;

2. Investments in other foreign/domestic collective investment schemes provided that the custodian and transfer agent (if applicable) of the CIS is approved by local regulations or registered/authorized/approved, as the case may be, by a regulatory authority that is an ordinary or associate member of the IOSCO;

3. OTC Derivatives; and

4. Such other assets as may be allowed by the Commission.

Guidance: All other assets which by their nature cannot be held in custody by the Custodian are subject to the fund manager’s record-keeping obligation and oversight function by the IOE. In such cases, the IOE must be informed of the records of those assets for which it is satisfied that the investment company holds ownership of such assets.

RULE 5.1.9 (c) (f) and (g)

f. Submit an undertaking/affidavit of the appointed liquidator pursuant to Rule 13.1.2 (e) (i) and (ii) stating that the liquidator will assume the fund manager’s obligation to liquidate assets on behalf of the investment company, within a maximum period of six (6) months from the receipt of the investment company of the Order revoking the Registration Statement and its Certificate, if the fund manager cannot liquidate the assets of the investment company prior to the fund manager’s dissolution and to assume the fund manager’s obligation in relation to the reportorial requirements under Rule 13.1.8 for the redemption of securities of the investment company.

g. Submit a copy of the Escrow Agreement within ten (10) days from execution in case an escrow account has been opened for the unclaimed assets of the investment company in case of liquidation of the assets of the investment company due to its failure to hire a new fund manager under Rule 5.1.10 or dissolution and withdrawal of ICA license of the fund manager.

RULE 5.3.2 (a) and (b)

b. Have a common shareholder in the investment company, or the fund manager who holds directly or indirectly five percent (5%) or more of the total number of issued shares of the investment company or fund manager.

b Have a common shareholder in the investment company, or the fund manager who holds directly or indirectly ten percent (10%) or more of the total number of issued shares of the investment company or fund manager.

RULE 5.3.3 (b)

Safekeeping by the Custodian applies to all assets which can be held in custody, whether by physical delivery to the custodian or by way of registration in book-entry form in the accounts of the investment company opened with the custodian.

RULE 5

Rule 5.9.1. Constitution or Engagement of an IOE. An investment company may constitute its Audit Committee as its IOE or may engage the services of a custodian bank, trust entity or an external auditor to serve as such.

Rule 5.9.2. Roles and Responsibilities of an IOE. The IOE shall:

1 Exercise care and diligence when monitoring the transactions and functions of the fund manager;

2 Oversee the transactions and functions of the fund manager to ensure compliance with the disclosures made in the Registration Statement (RS), prospectus, ICA, SRC and their implementing rules and regulations (IRR). For cross-border offerings or transactions, in addition to the abovementioned, oversee the transactions of the fund manager in order to ensure that it also complies with the standards/requirements of bilateral or multilateral agreements allowing cross-border offerings/transactions that the Philippines is party to;

3 Oversee the subscription and redemption of shares or units facilitated by the fund manager and to approve the request of the fund manager in the case of suspension of redemption of shares or units whenever necessary for the protection of the investors subject to the rules on Suspension of Redemption provided under Rule 10.4 of ICA-IRR;

4 Oversee the activities of the fund manager in order to ensure that it complies with the rules on investment restrictions/limitations, liquidity requirements and other regulations involving the operationalization of the investment objectives, investment policy or strategy of the investment company;

5 Oversee the transactions of the fund manager to ensure that delegation will not result in unnecessary fees to be paid by the investment company and ensure that it will not delegate its function to the extent that it becomes a letter box such as when it no longer has the power to make decisions in the implementation of the investment policy and strategies nor retain the suitable processes to monitor, control the activities and evaluate the performance of the delegate;

6 If, in the reasonable opinion of the IOE, the fund manager has not complied with any of the laws, rules or regulations applicable to the investment company and/or it failed to report to the Commission the said non-compliance, notify the Commission of its opinion, including particulars of the non-compliance, not later than five (5) business days after forming the opinion or upon knowledge of the non-compliance. The notification shall be done by filing an SEC Form 17-C. It shall also notify, without delay, the members of the Board of Directors of the investment company of its opinion so that the Board can apprise the fund manager of the said non-compliance and address any resulting breach;

7 Report to the Commission, any act of the fund manager which in its opinion may be detrimental to the interests of the shareholders or unitholders even if the said act is not in violation of any law, rule or regulation, not later than five (5) business days from knowledge thereof; and

8 If necessary, recommend to the Board of Directors of the investment company that the fund manager be removed due to its inability to fulfill its functions.

Rule 5.10 Independent Net Asset Value Calculator. An investment company must appoint an independent entity that will calculate or cross- check its net asset value (NAV) every dealing day which may be the custodian bank, trust entity, external auditor, audit committee or other service providers capable of calculating the NAV.

To be considered independent, the following criteria must be met:

1 The custodian bank or trust entity must be duly licensed by the Bangko Sentral ng Pilipinas, provided that it does not hold directly/indirectly 10% or more of the total number of issued shares in the investment company, fund manager, or vice versa, nor have a common shareholder that holds directly/indirectly 10% or more of the total number of the issued share capital of the investment company or fund manager; and

2 The external auditor shall not be the same as the one auditing the investment company and fund manager.

An investment company may engage for this purpose its Audit Committee acting as IOE, provided that it is capable of calculating the NAV, and other service providers capable of calculating the NAV, provided that they are not affiliated with the investment company and fund manager.

Rule 6.8 (j)

RULE 6.9

a. Shall have a cash reserve, or assets with high liquidity, low market risk and can be cashed within T+1 day, of at least ten percent (10%) of its net assets;

b. Invest in any of the following:

i. high quality debts securities;

ii. deposits; and

iii. money market instruments

c. Shall not engage in direct lending of monies.

a. Shall have a cash reserve, or assets with high liquidity, low market risk and can be cashed within T+1 day, of at least ten percent (10%) of its net assets;

b. Invest in any of the following:

i. high quality debts securities;

ii. deposits; and

iii. high quality money market instruments

Guidance: a high quality money market instrument has:

a. a remaining term to maturity of not more than 397 days; and

b. an issuer credit rating that is:

1. in the case of short-term credit rating, one of the two highest credit ratings; and

2. in the case of long-term credit rating, one of the three highest credit ratings.

iv. financial derivatives for hedging arrangements The hedging arrangement should:

(a)   not be aimed at generating a return;

(b)   result in an overall verifiable reduction of the risk of the qualifying CIS;

(c)   offset the general and specific risks linked to the underlying being hedged;

(d)   relate to the same asset class being hedged; and

(e)   be able to meet its hedging objective in all market conditions.

c. Shall not engage in direct lending of monies.

Guidance: Direct lending of monies refers to an instance in which an investment company lends money or makes loan directly to other entities (borrower) without intermediaries.

RULE 6.10 (b)

RULE 6.11.1

RULE 7.2

RULE 8.2

a. Publish such daily prices in at least two (2) national newspapers of general circulation which may be done through the industry organization/s;

b. Upload in its website or industry association, through digital portals such as its website or social media accounts; and

a. Publish such daily prices in at least two (2) national newspapers of general circulation which may be done through the industry organization/s; or

b. Upload daily in its website or industry association, through digital portals such as its website or social media accounts; or post them daily in a conspicuous place at the principal office of the investment company as well as in all its branches or correspondent offices which are designated redemption centers.

RULE 8.6

Report to the Commission within five (5) business days from the valuation error or incorrect pricing is found on the:

Report to the IOE and Commission within five (5) business days from the valuation error or incorrect pricing is found on the:

RULE 10.4

…

…

If the request for suspension of redemption of shares or units is made by the Fund Manager, for any of the grounds mentioned above, the approval of the IOE must be secured.

RULE 10.5

RULE 11.3

An investment company offering units of participation may make periodic distribution of income to investors of the fund on a pro-rata basis; provided, that the distribution of income shall be made only from cash received from interest income and/or cash dividends earned after deduction of applicable taxes and expenses. Investment companies issuing units of participation shall be exempt from SEC Memorandum Circular No.11, series of 2008 or any amendment thereto.

RULE 13 (e)

i. The fund manager must appoint a liquidator that will assume its obligation to liquidate of assets on behalf of the investment company, within a maximum period of six (6) months from the receipt of the investment company of the Order revoking the Registration Statement and its Certificate, if the fund manager cannot liquidate the assets of the investment company prior to the fund manager’s dissolution. In such case, an Affidavit and Undertaking of the liquidator must be submitted to the Commission;

ii. The unclaimed assets of the investment company from the date of dissolution of the fund manager shall be placed by the fund manager in an escrow account for ten (10) years or such period until all investors have claimed their investments, whichever is sooner, after which the funds shall be escheated in favor of the government in accordance with the procedure prescribed by existing laws and rules; and

iii. The fund manager must appoint a director, officer, majority stockholder or liquidator to assume its obligation in relation to the reportorial requirements under Rule 13.1.8 for the redemption of securities of the investment company. In such case, an Affidavit and Undertaking of the director, officer, majority stockholder or liquidator must be submitted to the Commission.

RULE 13.1.8

In case of concurrent dissolution of the fund manager and the investment company, the person or entity that has assumed the liabilities of the fund manager shall file a monthly report with the Commission, within ten (10) days after the end of every month, on the redemption of securities in the immediately preceding month. The report shall include the following:

1. 1.    Number of shares redeemed;
2. 2.    Number of shareholders or unitholders whose securities were redeemed;
3. 3.    Number of shareholders or unitholders whose securities are yet to be redeemed; and
4. 4.     The reasons why their securities are not yet redeemed.

RULE 13

Rule 13.3- Liquidation of Assets of an Investment Company with a Revoked Registration Statement

The fund manager shall carry out the liquidation of assets on behalf of the investment company. In all cases of revocation of the Registration Statement and Certificate of Permit to Offer Securities for Sale, the fund manager must liquidate the assets within a maximum period of six (6) months from the receipt of the investment company of the Order revoking the Registration Statement and its Certificate.

Rule 13.3.1. Appointment of a Liquidator in case of Concurrent Dissolution of the Investment Company and Fund Manager

In case of concurrent dissolution of the fund manager and the investment company, where applicable under Rule 13.1.2 e (i) or in such other cases under the Rules, the appointed liquidator is tasked to convert the assets of the investment company to money and dispose of the same to investors, stockholders and other parties.

Any qualified natural or juridical person may serve as a liquidator; provided, that if the liquidator is a juridical entity, it must designate a natural person/s who possess/es all the following qualifications:

1. i.     A citizen of the Philippines or a resident of the Philippines in the six (6) months immediately preceding his appointment;
2. ii.     Of good moral character and with acknowledged integrity, impartiality and independence;
3. iii.    Has the requisite knowledge of commercial laws, rules and procedures, as well as the relevant training and/or experience that may be necessary to enable him to properly discharge the duties and obligations of a liquidator; and
4. iv.    Such other qualifications as may be determined by the Commission taking into consideration the protection of interests of all stockholders/unitholders.

Rule 13.3.2. Appointment of an Escrow Agent for the Unclaimed Assets of an Investment Company.

Where applicable in case of liquidation of the assets of the investment company due to its failure to hire a new fund manager under rule 5.1.10 or concurrent dissolution of the fund and its fund manager under Rule 13.1.2 e (ii), the fund manager must appoint an escrow asset/s or unclaimed assets of the investment company from the date of dissolution of the fund manager for a period of ten (10) years of such period until all investors have claimed their investments, whichever is sooner, after which the funds shall be escheated on favor of the government in accordance with the procedure prescribed by existing laws and rules.

VIOLATION

BASIC PENALTY

MONTHLY PENALTY

Php10,000.00

Php1,000.00

1. Incomplete (i.e. no explanation

Php5,000.00

Php500.00

2. Misinterpretation/Misinformation

Php15,000.00

Php1,500.00

1. Incomplete

Php5,000.00

Php500.00

2. Incorrect