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SEC readies guideline for registration of OLPs

THE SECURITIES and Exchange Commission (SEC) has issued the draft guidelines for the registration and operation of online lending platforms (OLPs), in line with efforts to stamp out abusive and predatory practices.

The Commission released for public comment the draft guidelines on November 19, following the imposition of a moratorium on the registration of new OLPs on November 5.

The proposed guidelines will apply to both existing and newly registered financing and lending companies who have yet to own, operate or utilize OLPs and other modes of financial  technology  (fintech),  as  well  as  those  who  are  already  engaged  in  fintech, who look to provide their credit products and related services.

Under  the  proposed  guidelines,  no  financing  or  lending  company  will  be  allowed  to own, operate, or use OLPs or engage in fintech without registration and prior approval by the SEC. The company’s ability to engage in fintech must also be included in its purpose as stated in its Articles of Incorporation.

Further, the names of the OLPs shall be registered as business or trade names of the financing or lending company, pursuant to SEC Memorandum Circular No. 13, Series of  2019,  which  provides  the  Amended  Guidelines  and  Procedures  on  the  Use  of Corporate and Partnership Names. 

Aside  from  being  duly  registered  and  licensed  as  financing  or  lending  companies, applicants for an OLP license must also have at least five directors and at least two independent directors, or such number that that will constitute 20% of the members of the board of directors, whichever is higher. 

The  applicant  should  submit  certain  documents  to  the  Commission,  including  a detailed  business  and  operational plan containing the company’s compliance with Republic  Act  No.  3765,  or  the  Truth  in  Lending  Act  (TILA),  and  SEC  Memorandum Circular  No.  19,  Series  of  2019  (SEC  MC  19)  on  the  Disclosure  Requirements on Advertisements  of  Financing  Companies  and  Lending Companies  and  Reporting  of Online Lending Platforms.

Further, the applicant financing or lending company must show compliance with SEC Memorandum  Circular  No.  18,  Series  of  2019  (SEC  MC  18)  on  the  Prohibition  on Unfair  Debt  Collection  Practices  of  Financing  Companies  and  Lending  Companies; Republic Act No. 9510, or the Credit Information System Act; and SEC Memorandum Circular  No.  28, Series  of  2020  on  the  Requirement  for  Corporations,  Partnerships, Associations, and Individuals to Create and/or Designate E-mail Account Address and Cellphone Number for Transactions with the Commission. 

The SEC Corporate Governance and Finance Department (CGFD) will then evaluate the documents submitted by the applicant company. The financing or lending company will then present its business and operational plan as well as its marketing strategy, target   market,   interest   rates,   loan   products,   and   services   before   a   panel   of representatives from the SEC. 

The  financing  or  lending  company  will  likewise  provide  a  walk-through  of  the  OLP simulating actual user experience,  its  complaint-handling  process, and a  discussion on the extent of data to be collected by the OLP and how they will be handled.

The SEC panel will then submit its recommendation to the Commission En Banc, who will decide on whether to grant or deny the application. The Commission En Banc’s decision  will  be  considered  final.  Rejected  financing  and  lending  companies  may reapply after one year and should demonstrate that the reason for rejection no longer exists. 

Under  the  draft guidelines,  the  OLP  license shall  have  an  initial  validity  of  one  year from the issuance date, subject to periodical examination and renewal by the SEC. 

The  validity  of  the  license  will  depend  on  the  financing  or  lending  company’s compliance with reportorial requirements and no violations of TILA, SEC MC 18, SEC MC 19, and other reportorial requirements for the immediately preceding year, among others.

Financing and lending companies who have been granted OLP licenses should report any  change  or  termination  of  the  OLP  to  the  SEC  not  less  than  10  days  before implementing such change or termination. 

Those with existing OLPs who wish to develop, own, operate, or utilize additional OLPs shall apply anew for the prospective OLP. 

Financing companies who fail to comply with the conditions of the OLP license will be subject to penalties amounting to P100,000 for the first offense and P200,000 for the second offense. Similarly, lending companies will be subject to penalties of P50,000 and P100,000 for the first and second offense, respectively.

For  the  third  offense,  the  SEC  may  impose  a  fine  of  not  less  than  twice  the  basic penalty but not more than P1 million; suspension of the OLP license for 60 days; or revocation of the OLP license, as appropriate for each circumstance. The Commission may  also  impose  a  daily  penalty  of  P400  and  P200  for  financing  and  lending companies, respectively, on top of the basic penalties.

Depending on the gravity of the offense, the SEC may proceed with the suspension or revocation of the company’s Certificate of Authority to Operate as a Financing or Lending Company (CA) and primary license.

Financing and lending companies, which commence the operations of OLPs, without complying with the guidelines shall have their CAs or primary licenses suspended or revoked, depending on the facts, circumstances, and gravity of the offense. 

Companies with existing OLPs must comply with the guidelines within 180 days from the effectivity of the memorandum circular by applying for an OLP license and submitting a complete set of requirements. Those who fail to submit their application form plus the required documents will be barred from operating their OLPs. 

Existing   financing   and   lending   companies   must   also   amend   their   Articles   of Incorporation in compliance with the circular within the 180-day period.

The SEC may, at its discretion, set a limit on the total number of OLPs that may be established.  The Commission shall take into consideration the total number of applications received, OLPs already existing, and its effects on the industry and the general public. 

The draft Memorandum Circular on the Guidelines on the Registration and Licensing of Online Lending Platforms may be accessed through the SEC website. All interested parties have until December 3 to submit their comments and inputs to the CGFD by email to cgfd_md@sec.gov.ph.


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