The Securities and Exchange Commission of the Philippines has added to its rules and regulations that relate to the Investment Company Act and that apply to fund managers, investment companies and firms that deal with investment companies.
Rule 1 already states that the phrase Collective Investment Scheme (CIS) refers to an arrangement whereby funds are solicited from the investing public for the purpose of investing in securities etc. The regulator has added that such investments should only be included if they are registered, authorised or approved by a regulator that is an ordinary or associate member of IOSCO, the International Organisation of Securities Commissions of which the Philippine SEC is a member. The term CIS in the Philippines may either have a corporate structure such as an investment company or a contractual structure such as a unit investment trust fund.
The term ‘custodian’ now refers to an independent third-party entity authorised to engage in the business of custodial and/or safekeeping of investment assets of the investment company. It includes a universal or commercial bank with a trust licence, a non-bank entity with a trust licence, a custodial bank accredited by the central bank and a registered securities depository.
An IOE or independent oversight committee is described as an impartial committee or entity tasked to monitor the transactions and functions carried out by a fund manager. "Investment company assets" refer to assets owned by an investment company which it holds on behalf of stockholders/unitholders and which are either (i) assets which can be held in custody, whether by physical delivery to the custodian or by way of registration in book-entry form in the accounts of the fund opened with the custodian, or (ii) other assets which by their nature cannot be held in custody, such as derivative instruments.
Feeder funds, funds-of-funds and multi-asset/asset-allocation funds are now classified as investment companies.
Rule 3.4 (f) and (j)
This rule looks at the minimum requirements that an investment company has to satisfy when it applies to the SEC for incorporation. It still normally has to have a minimum capital of ?50 million but now, if it is (or wants to be) one of a group of investment companies to be managed by the same fund manager with a track record of at least five years, the minimum subscribed and paid-up capital is set at ?1 million, as long as an affidavit is submitted that describes the fund manager's track record.
Rule 5.1.2 (c) and (g)
This rule, on the responsibilities of a fund manager, has been amended to allow for participants to receive accounts, reports and statements by electronic means such as e-communications with soft-copy attachements. Nevertheless, the fund manager must take no longer than 10 days to send them hard copies if they ask for them within one month of being notified that the documents are available.
It is also a novelty that the fund manager must ensure that all the assets of the investment company are deposited with an independent custodian except those that cannot be so placed. Examples of these are: (i) investments in deposits; (ii) investments in other CISes as long as the custodian (and also, perhaps, transfer agent) of the CIs is approved by local regulations or approved by a regulator that is a member of IOSCO; (iii) OTC (over-the-counter) derivatives; and other assets chosen by the regulator.
Rule 5.1.9 has long obliged every fund manager to submit an undertaking or affidavit of assumption of liabilities of subject company's officer that says in effect that should any third party lodge a claim against the corporation, said officer may be held responsible for it. Claims now include "the submission of the reportorial requirements under rule 13.1.8 for the redemption of securities of the investment company in case of concurrent dissolution of the fund manager and the investment company."
There is also new text that obliges the fund manager to submit an undertaking or affidavit of the appointed liquidator pursuant to Rule 13.1.2, to submit a copy of the escrow agreement within ten days from execution in case an escrow account has been opened for the unclaimed assets of the investment company in case of the liquidation of the assets of the investment company due to its failure to hire a new fund manager.
The fund manager as well as the liquidator is now allowed to place the unclaimed assets in the escrow account for ten years or until all investors have claimed their investments, whichever is the sooner.
To be considered independent by the rules, a custodian must not hold 10% of the total number of issued shares in either the investment company and fund manager or vice versa.
Safekeeping by the custodian now applies to all assets which can be held in custody, whether by physical delivery to the custodian or by way of registration in book-entry form in the accounts of the investment company opened with the custodian.
Rule 5 - the independent oversight entity
Rule 5.9 has been changed to say that an investment company must oversee its fund manager and that, hence, the former is required to have an IOE that functions as an impartial committee that monitors the transactions and functions that the fund manager carries out. Rule 5.9.1 says that the investment company may give the job of the IOE to its audit committee or a custodial bank, a trust entity or an external auditor. Rule 5.9.2 sets out the responsibilities of IOEs at great length.
Rule 5 - the NAV calculator
An investment company must appoint an "independent entity" (perhaps its custodial bank or a trust entity or an external auditor or some other service provider) to calcuate or double-check its net asset value every dealing day. It must satisfy two important criteria to be considered independent.
Rule 6.9 - MMFs
This rule has been amended to include stipulations that cover financial derivatives for hedging arrangements. Such arrangements should not be aimed at guaranteeing returns. Instead, they ought to result in verifiable reductions of the risks of the qualifying CISes in question, they ought to offset the risks linked to the underlying assets being hedged, they ought to relate to the same asset classes being hedged, and they ought to be able to meet their hedging objective in all market conditions.
Rule 6.10 has long stated that, for purposes involving liquidity, at least 10% of the assets of an investment company ought to be invested in liquid or semi-liquid assets. Rule 6.10(b) now says that the investment company may go below 10% as long as it has sent the regulator a notarised "liquidity contingency plan," signed by the president of the fund and its fund manager.
The computation and expense ratio of the investment company must be disclosed in the quarterly and annual report.
The daily computation and publication of the NAVps/NAVpu has long been a requirement for the fund manager. Now he no longer need publish such daily prices in at least two national newspapers of general circulation; instead, he may upload them daily onto his website. The way the Philippine regulator puts this is as follows.
"Upload daily in its website or industry association, through digital portals such as its website or social media accounts; or post them daily in a conspicuous place at the principal office of the investment company as well as in all its branches or correspondent offices which are designated redemption centres."
If the fund manager asks for the suspension or redemption of shares or units, the approval of the IOE must be secured, according to another new phrase.
In the case of the concurrent dissolution of the fund manager and the investment company, the fund manager must appoint a liquidator, the unclaimed assets of the investment company from the date of the dissolution of the fund manager have to be placed by the fund manager in an escrow account for ten years and the fund manager must appoint a director, officer, majority stockholder or liquidator to assume its obligation in relation to reporting rules. These things are discussed afresh in detail.
Rule 13.1.8 and Rule 13.3 have been heavily amended as well.