SEC drafts rules to protect consumers of financial products, services

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THE Securities and Exchange Commission (SEC) has released a draft implementing rules and regulations (IRR) for a law that aims to protect consumers of financial products and services.

The draft IRR of Republic Act No. 11765 or the Financial Products and Services Consumer Protection Act of 2022 will apply to all financial products and services and financial service providers.

“It is the policy of the State to ensure that appropriate mechanisms are in place to protect the interest of consumers of financial products and services under the conditions of transparency, fair and sound market conduct, and fair, reasonable, and effective handling of financial consumer disputes, which are aligned with global best practices,” the first section of the rules read.

The IRR seeks to implement financial consumers’ right to equitable and fair treatment; disclosure and transparency of financial products and services; protection of consumer assets against fraud; data privacy and protection; and timely handling of complaints.

Upon implementation, the IRR will give the SEC the power to formulate its standard and rules, conduct market surveillance and examination, require financial service providers and their third-party agents to submit reports, and impose enforcement action against non-compliant financial service providers.

The enforcement actions may include restriction; disqualification; imposition of fines, suspension, or penalties; cease and desist order; suspension; and disgorgement of profits obtained or losses avoided.

Under the IRR, the commission will provide efficient and effective consumer redress through mediation, conciliation or other modes of dispute resolution which the financial consumer may avail before adjudication.

The SEC will also have the authority to adjudicate actions arising from financial transactions and the claim or relief prayed for by the financial consumer not exceeding P10 million.

“The commission, through its Authorized Operating Department or body, may order the payment or reimbursement of money which is subject of the action filed before it,” the draft read.

The IRR will also require investment advisers or financial advisers to be registered with the commission before engaging in the business of or acting as an investment adviser.

The adviser must give sufficient product disclosure to the financial consumer before the contracting of the financial product or service.

Upon the implementation of the IRR, investment advisers are required to file with the commission their application within 90 days from the effectivity of the memorandum circular.

The IRR also seeks to hold financial service providers’ board and senior management accountable for approving and overseeing the implementation of the Financial Service Provider’s Consumer Protection Risk Management System.

Financial service providers need to have appropriate product design and delivery which have adequate product suitability and affordability, a cooling-off period, and transparent fees charged for prepayment of loans.

The IRR will also require transparent and responsible pricing of financial products and services, fair and respectful treatment of clients, prohibition of abusive collection or debt recovery practices, and privacy and protection of client data.

The rules also include the disclosure of bundled products and the right of choice to be made known to consumers during the shopping and pre-contractual phases. Financial service providers are to offer product bundles with market-based pricing.

The rules will also require the staff of financial service providers who deal directly with consumers to receive adequate training suitable to the complexity of the financial products or services they offer.

Any person who willfully violates the IRR provisions may be punished by one- to five-year imprisonment or a fine of P50,000 to P2 million, or both.

For administrative sanctions, the SEC may impose a fine of P50,000 to P10 million for each instance of investment fraud and not more than P10,000 fine for each day of continuing violation.

In case of profit gain or loss as a result of the violation, the SEC may impose a fine not more than three times the profit gain or loss. — Justine Irish D. Tabile