THE Securities and Exchange Commission’s (SEC) proposed rules requiring corporations to disclose their beneficial owners are expected to strengthen transparency and governance standards in the Philippines, potentially bolstering investor confidence and market integrity, according to analysts.
“[The proposed rules] would further improve transparency and overall corporate governance standards in the country to further align with global best practices and further protect and uphold the interest of the investing public,” Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a Viber message.
He noted that stronger governance frameworks could enhance the country’s reputation among global investors and attract more long-term foreign capital.
The SEC has released for public comment a draft memorandum circular (MC), issued on Oct. 10 and open for feedback until Nov. 9, that seeks to strengthen and clarify rules on beneficial ownership disclosure to enhance transparency and prevent money laundering and corruption.
“The Commission adheres to Republic Act No. 11032 or ‘The Anti-Red Tape Act of 2007’ which declares the policy of the State to establish effective practices, aimed at efficient turnaround of the delivery of government services and prevention of graft and corruption in the government,” the SEC said.
“This is a timely and much needed reform to combat the use of corporate vehicles as tools for unlawful activities and regulatory evasion,” China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message.
“The proposed new beneficial ownership rules will be a huge boost for corporate transparency and integrity. In turn, a more transparent corporate and financial system will improve our market’s reputation to both foreign and local investors,” he added.
Under the draft circular, corporations, partnerships, foreign companies, and one-person corporations will be required to provide detailed information about the persons who ultimately own or control them.
The proposed guidelines categorize beneficial owners based on various modes of control or ownership. These include direct ownership of at least 20% of shares, contractual control, influence over board elections, dominant influence over corporate policies, nominee arrangements, and senior management control when no natural person is otherwise identifiable.
Entities will also be required to maintain accurate and up-to-date records of beneficial ownership, including names, addresses, tax identification numbers, nationalities, and ownership percentages. Changes in ownership must be reported to the SEC within seven days.
The SEC will verify submissions and has the authority to impose sanctions, including fines or even dissolution, on companies that fail to comply or submit false information.
“If after 15 days from receipt by the Corporation of the Notice and Order from the Commission has lapsed without compliance with the abovementioned, or after a finding by the Commission through its Resolution that the corporation indeed submitted false Beneficial Ownership Information, the reporting corporation shall be penalized with a fine of up to P2 million, and shall subsequently be dissolved,” the SEC said.
Mr. Colet noted, however, that having a sound regulatory framework is only the first step.
“The main challenge is to have a strong culture of compliance and effective enforcement. There are hundreds of thousands of registered corporations, so the SEC should leverage technology and artificial intelligence (AI) to support the agency,” he said.
“For example, AI solutions can be developed to help respond to stakeholder queries, monitor submissions, and spot irregularities. It’s also important for the SEC to establish robust information-sharing mechanisms with foreign counterparts since beneficial ownership is sometimes hidden through offshore companies,” he added
The draft circular also envisions using technology and artificial intelligence to streamline the collection and storage of beneficial ownership data while ensuring adequate data privacy safeguards. — Alexandria Grace C. Magno
