SEC forms unit to review operations of 400 financing firms

The Securities and Exchange Commission (SEC) has created a committee to look into the operations of nearly 400 financing companies on concerns that some of these firms are engaged in fraudulent activities.

SEC Chairman Lilia R. Bautista said the Commission has expressed concern over the growing operations of non-bank lending institutions in the country following reports that a number of financing and lending companies have gone beyond their primary purpose.

The committee will be headed by Associate Commissioner Joselia Poblador, and will have as members SEC Corporation Finance Department director Justina Callangan and SEC General Accountant Roberto Manabat.

"We are worried about these finance companies. We will conduct a survey on what mostly is their activity. Is it relending? If relending is their main business, then we have to make sure that they don’t get funds from more than 19 lenders or else they are already engaged in quasi-banking," Bautista said.

The SEC was earlier considering putting on hold the issuance of permits to new financing and lending firms due to increasing applications received from various entities. It receives two to five applications a week.

According to the SEC, there has been a steady increase in the number of applications received since last year.

The Commission has received reports that several lending and financing firms have been soliciting funds from the public in violation of their primary purpose which is to grant loans to the public.

The SEC said while it recognized the role of microfinance in the fight against poverty, it could not close its eyes to the dangers of thousands of unregulated lending investors who derive their funding requirements from the investing public.

The SEC admitted that it is helpless in regulating the activities of the close to 400 finance companies and about 7,000 lending corporations in the country.

In view of this, the Commission has warned the public against placing their money in financing and lending companies that promise high investment returns.

A bill seeking to regulate the establishment and operations of lending companies is pending before Congress. The bill was filed by Bacolod City Rep. Monico Puentevella last year as part of efforts to protect the public against deceptive schemes and fly-by-night lending operators.

Puentevella said while there are special laws, such as the Financing Company Act, that govern most non-bank financial companies, there is no specific law that covers lending firms.

The bill will lay down the minimum requirements and standards for the creation of lending firms.

The proposed measure gives the Department of Trade and Industry (DTI) the authority to supervise the operations of lending companies.

Under the bill, corporations will be required to register as a corporation and mandated to file with the DTI a schedule of liabilities, identifying debtors and indicating the maturity pattern of transactions as well as other reports that the DTI may require. These reports shall be signed under oath by the company’s principal executive officer and principal financial officer.

The bill also provides stiffer penalties for erring lending firms.

Violators would be fined not less than P10,000 or maximum imprisonment of 10 years.

Last year, the SEC directed all companies engaged in direct lending activities to convert themselves into financing companies and increase their capitalization to P10 million for those operating in Metro Manila and P2.5 million for those in the provinces.

Lending companies registered as financing companies will be subjected to the reportorial requirements under the law and can be closely monitored by the SEC.

Under the existing rules, the SEC can only investigate lending investors on a general basis as a corporation.