THE Securities and Exchange Commission has drafted rules covering cross-border sales of investment companies, including the requirements and procedure for authorization, reportorial submission, as well as penalties for violations.

Earlier this month, the commission joined the ASEAN Collective Investment Schemes (CIS) Framework, which opens the gate for institutions of member countries to a wider range of investment funds.

The SEC joined the framework through a supplemental memorandum of understanding with its counterparts in Thailand (SEC Thailand), Securities Commission Malaysia (SC), and the Monetary Authority of Singapore (MAS).

Its drafted rules apply to investment companies incorporated in the Philippines, foreign CIS of member countries, and other qualifying CIS authorized to be offered under the framework.

For investment companies incorporated in the Philippines planning to offer or sell shares in other member jurisdictions, registration under the Investment Company Act (ICA) and the Securities Regulation Code (SRC) is required.

“An investment company that seeks to offer its shares under the Framework must demonstrate compliance with both domestic regulations and Standards of Qualifying CIS but where the two sets of requirements differ on a particular provision, the stricter requirement/s would govern and such fact must be highlighted in the prospectus of the fund,” the SEC said.

Other parties involved, such as the fund managers or CIS operators, custodians, independent oversight entities, will also be governed by the Standards of Qualifying CIS.

Existing investment companies or a new corporation applying for incorporation must include in the primary purpose clause of its articles of incorporation (AOI) that it plans to offer or sell in other jurisdictions, a provision on its AOI that would limit its shareholders’ liability to their investments in the company, and a notarized confirmation that the investment company and fund manager will comply with the provisions of the standard of qualifying CIS (QCIS).

“The cross-border offerings of the investment company in member jurisdictions will only cover retail investors,” the SEC said.

The commission will review the application for authorization within 21 business days from their submission of complete documents. A filing fee of P10,000 and legal research fees may apply “provided all other filing fees covered by SEC Form 7-1 and SEC Form 12-1 have been previously paid covering the securities.”

If the commission deems that the fund manager and the investment company meet the requirements, the SEC will issue a letter stating that it has been approved for public offer in the Philippines and that the commission has no objections.

Meanwhile, foreign CIS offered and sold in the Philippines are subjected to a different set of requirements, payment fees, and reportorial procedures.

A foreign CIS must be constituted in a member jurisdiction and it must be authorized to be sold to the investing public of its home jurisdiction. It should also be assessed as a qualifying CIS by its home regulator, among others.

It must also be recognized and permitted to be offered in the Philippines by the SEC.

The foreign CIS and all of the parties involved in its offer should adhere to the requirements of the Standards of Qualifying CIS and its amendments, comply with the disclosure requirements of the SEC and the requirements of the proposed regulations.

“A local representative and distributor/s in the Philippines must be appointed for each foreign fund that is to be offered, marketed, and distributed in the Philippines,” the commission said.

The draft rules also discuss the functions of the representative and distributors.

“The applicable provisions of the SRC, ICA and their implementing rules and regulations on civil and/or criminal liabilities shall apply in case of any violation relative to the offering of the foreign CIS in the Philippines,” the SEC said.

The commission is now requesting comments from investment companies, fund managers, mutual fund distributors, entities dealing with investment companies, foreign CIS, and other interested parties on the exposure draft of the memorandum circular.

A copy of the document may be accessed through the SEC’s website. — Keren Concepcion G. Valmonte

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