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SEC tells listed firms to submit policies on related party transactions
By Arra B. Francia
THE SECURITIES and Exchange Commission (SEC) has ordered listed companies to submit their policies on “material” related party transactions (RPT) by Oct. 28, according to a notice posted on its Web site.
“This is based on the memorandum circular on material related party transactions before,” SEC Commissioner Kelvin Lester K. Lee said in a mobile phone message.
The country’s corporate regulator last April released SEC Memorandum Circular No. 10, Series of 2019, which requires all listed firms to adopt a group-wide material RPT Policy.
Meanwhile, companies listed after the memorandum circular was issued will be given six months from their listing date to submit the report.
The RPT policy must then be posted on the company’s Web site within five days after it is submitted to the SEC.
“This particular requirement is a welcome development for us. The idea here is to strengthen further the corporate governance structure of listed companies and at the same time provide more transparency on transactions between and among related parties,” PwC Philippines Assurance Partner Zaldy D. Aguirre said in a telephone interview yesterday.
The policy should include identification of related parties, coverage of the RPT policy, identification and prevention or management of potential or actual conflict of interest that may arise, and whistle blowing system.
Under the circular, RPTs are defined as “transfer of resources, services or obligations between a reporting… and a related party, regardless of whether a price is charged.”
Transactions are considered material when they amount to at least 10% of a company’s total assets. The company’s board is allowed to lower the threshold should it determine that the RPT could cause damage to the company and its shareholders.
Related parties pertain to listed firms’ directors, officers, substantial shareholders, as well as their spouses and relatives within fourth civil degree of consanguinity or affinity.
Related parties also include a “company’s subsidiaries, affiliates, and any party — including their subsidiaries, affiliates and special purpose entities — where the company exerts direct or indirect control or which exerts direct or indirect control over the company.”
Mr. Aguirre added that a RPT policy protects investors.
“If you are an investor, you would know how the transaction is done, whether they are at arm’s length… in other words there’s no special accommodations or discounts given to any of the parties involved,” he explained.
“So, in a way, you will have that benefit of knowing and ascertaining for yourself as an investor whether the company is actually acting on the best interest of the investors.”
The SEC will impose a basic penalty of P10,000 should a listed company fail to submit its RPT Policy, in addition to a monthly penalty of P1,000 until such time that the company submits its report.
The commission said the policy requirement will help improve the Philippines’ performance in the World Bank Group’s annual Ease of Doing Business survey, particularly on the indicator of Protecting Minority Investors.