SEC Associate Commissioner Joselia Poblador said the objective of the proposed TA is to assist the SEC in the development of regulations for risk formation of a medium- to long-term strategy to advance reforms and come up innovative products to revive investor interest.
Poblador said the proposed TA will involve the review of the operations of over 600 financing companies and 10,000 lending investors. "The purpose of the study is to come up with a regulatory policy on financing companies," she said.
The proposed TA would also help the SEC develop regulations for risk-based capital standards for securities broker-dealers and investment houses taking into account international best practices and the current prudential standards applicable to such institutions.
The TA will also cover the drafting of amendments to laws and regulations as appropriate, to strengthen investor protection and/or eliminate unnecesssary constraints on the competitiveness and development of the non-bank sector and capital markets and to enhance legal and enforcement powers.
The SEC, for one, is seeking the inclusion of the fit-and-proper rule on the selection of public company directors to ensure higher levels of competence and professionalism among corporate officers.
By applying the fit-and-proper rule, the SEC will have the authority to reject or approve the appointment of any director and will have vast powers to discipline erring officials.
The SEC also intends to impose risk-based capital standards on stockbrokerage houses and investment houses to ensure that they have adequate capital to cover risks and meet contractual obligations.
The MRD said the capital adequacy scheme is particularly valid when the systemic cost of default may be unacceptably high.
SEC said standards to ensure investor protection from insolvency need to be further strengthened as securities broker-dealers and investment houses have inconsistent capital requirements.
The SEC’s net capital rule, applicable to brokers and dealers, is largely risk-based and is derived from the US SEC uniform net capital rule. On the other hand, the investment houses are subject to capital standard defined in the implementing guidelines of the Bangko Sentral ng Pilipinas (BSP).
The Asian Development Bank said these capital requirements are not sufficiently calibrated to the risk of assuming positions in securities or providing sufficient early warning in the event an intermediary encounters financial distress that might lead to insolvency.
According to the ADB, these standards should be revised and harmonized to take the form of a uniform risk-based capital standard for securities market intermediaries. It added that the standards should be in harmony with those advocated by IOSCO for all financial market players.
The ADB said there should be a tiering of initial capital requirements depending on the nature of the risk undertaken and the types of licenses obtained.