Outpacing financial regulations

Last week, the Philippine Stock Exchange (PSE) suspended six listed companies because of their failure to submit their annual reports for fiscal year 2022. The PSE said the non-submission of annual reports is a violation of its listing and disclosure rules. It may be noted that these documents are critical in guiding the investment decisions of the general public.

PSE’s latest suspension order covered the following listed firms: TKC Metals Corp.; Phoenix Petroleum Philippines, Inc.; MJC Investments Corp.; Manila Jockey Club, Inc.; IPM Holdings, Inc.; and DFNN, Inc. Among them, only financial technology (fintech) and gaming firm DFNN disclosed the actual reason why it has not yet submitted its annual report to the PSE.

According to DFNN’s Investor Relations Officer Abigail Garcia, the company has sometimes outpaced financial and accounting standards that have not been updated with the recent passage of Philippine laws on newer fintech processes. She said that some of these innovations have no precedent in terms of applying the new laws.

Further regional assessment is required, thus delaying the submission of its audited financial statements (AFS) for the preceding year. Ms. Garcia disclosed that the company needs more time to review its accounts for compliance and aims to complete the AFS by this week.

DFNN has adopted modern business strategies involving biometrics, e-banking solutions, artificial intelligence, learning management solutions, blockchain, internet of things, payment solutions, cryptocurrency and digital assets, as well as other data science applications.

During the ASEAN Gaming Summit last March at the Marriott Manila Hotel, DFNN Executive Chairman Ramon Garcia, Jr. promoted foreign investments in the Philippines by citing the country as having the most innovative and responsive gaming environment. His company remains at the forefront of utilizing cutting-edge technology and incorporating forward-looking strategies in the fintech and gaming sectors.

A report published by the Philippine Institute for Development Studies (PIDS) recognized several problems arising from applying old laws to new technology. Due to inconsistency of terminology, a concept in the fintech taxonomy may have materially different content from a traditional financial taxonomy. As such, concepts not covered by new technologies may not be accounted for in traditional taxonomies.

Other issues arise from overlapping jurisdictions where different agencies regulate activities covered by various similar terms; policy conflict when a norm may not conform with other policy considerations; and implementation mismatch with agencies interfacing only with a concept at a particular level while some details are absent or incompatible.

The PIDS study found that fintech does not have an established meaning in Philippine legislation, and the term is broadly used by policy pronouncements to apply to any technological development in finance. Accordingly, the country’s financial regulations were developed alongside contractual arrangements and institutions that have not seen fundamental changes for decades.

Another finding is that the government, when confronted with financial innovations, is often constrained to shoehorn these innovations into its traditional understanding of relevant concepts — resulting in rules that are inconsistent or overlapping.

“When disruptive technologies arrive, the corresponding benefits cause market incentives to shift and affect earlier arrangements structured in part by the rules shaped by the law. The greater the disruption and higher level of regulatory mechanisms lead to a wider regulatory gap,” it concluded.

J. Albert Gamboa is the chief finance officer of the Asian Center for Legal Excellence and vice-chair of the FINEX Ethics Committee. The opinion expressed herein does not necessarily reflect the views of these institutions and BusinessWorld.

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