The Securities and Exchange Commission (SEC) has issued the draft guidelines for the registration and operation of online lending platforms (OLPs), in line with efforts to stamp out abusive and predatory practices.
The Commission released for public comment the draft guidelines on November 19, following the imposition of a moratorium on the registration of new OLPs on November 5.
The proposed guidelines will apply to both existing and newly registered financing and lending companies who have yet to own, operate or utilize OLPs and other modes of financial technology (fintech), as well as those who are already engaged in fintech, who look to provide their credit products and related services.
Under the proposed guidelines, no financing or lending company will be allowed to own, operate, or use OLPs or engage in fintech without registration and prior approval by the SEC. The company’s ability to engage in fintech must also be included in its purpose as stated in its Articles of Incorporation.
Further, the names of the OLPs shall be registered as business or trade names of the financing or lending company, pursuant to SEC Memorandum Circular No. 13, Series of 2019, which provides the Amended Guidelines and Procedures on the Use of Corporate and Partnership Names.
Aside from being duly registered and licensed as financing or lending companies, applicants for an OLP license must also have at least five directors and at least two independent directors, or such number that that will constitute 20% of the members of the board of directors, whichever is higher.
The applicant should submit certain documents to the Commission, including a detailed business and operational plan containing the company’s compliance with Republic Act No. 3765, or the Truth in Lending Act (TILA), and SEC Memorandum Circular No. 19, Series of 2019 (SEC MC 19) on the Disclosure Requirements on Advertisements of Financing Companies and Lending Companies and Reporting of Online Lending Platforms.
Further, the applicant financing or lending company must show compliance with SEC Memorandum Circular No. 18, Series of 2019 (SEC MC 18) on the Prohibition on Unfair Debt Collection Practices of Financing Companies and Lending Companies; Republic Act No. 9510, or the Credit Information System Act; and SEC Memorandum Circular No. 28, Series of 2020 on the Requirement for Corporations, Partnerships, Associations, and Individuals to Create and/or Designate E-mail Account Address and Cellphone Number for Transactions with the Commission.
The SEC Corporate Governance and Finance Department (CGFD) will then evaluate the documents submitted by the applicant company. The financing or lending company will then present its business and operational plan as well as its marketing strategy, target market, interest rates, loan products, and services before a panel of representatives from the SEC.
The financing or lending company will likewise provide a walk-through of the OLP simulating actual user experience, its complaint-handling process, and a discussion on the extent of data to be collected by the OLP and how they will be handled.
The SEC panel will then submit its recommendation to the Commission En Banc, who will decide on whether to grant or deny the application. The Commission En Banc’s decision will be considered final. Rejected financing and lending companies may reapply after one year and should demonstrate that the reason for rejection no longer exists.
Under the draft guidelines, the OLP license shall have an initial validity of one year from the issuance date, subject to periodical examination and renewal by the SEC.
The validity of the license will depend on the financing or lending company’s compliance with reportorial requirements and no violations of TILA, SEC MC 18, SEC MC 19, and other reportorial requirements for the immediately preceding year, among others.
Financing and lending companies who have been granted OLP licenses should report any change or termination of the OLP to the SEC not less than 10 days before implementing such change or termination.
Those with existing OLPs who wish to develop, own, operate, or utilize additional OLPs shall apply anew for the prospective OLP.
Financing companies who fail to comply with the conditions of the OLP license will be subject to penalties amounting to P100,000 for the first offense and P200,000 for the second offense. Similarly, lending companies will be subject to penalties of P50,000 and P100,000 for the first and second offense, respectively.
For the third offense, the SEC may impose a fine of not less than twice the basic penalty but not more than P1 million; suspension of the OLP license for 60 days; or revocation of the OLP license, as appropriate for each circumstance. The Commission may also impose a daily penalty of P400 and P200 for financing and lending companies, respectively, on top of the basic penalties.
Depending on the gravity of the offense, the SEC may proceed with the suspension or revocation of the company’s Certificate of Authority to Operate as a Financing or Lending Company (CA) and primary license.
Financing and lending companies, which commence the operations of OLPs, without complying with the guidelines shall have their CAs or primary licenses suspended or revoked, depending on the facts, circumstances, and gravity of the offense.
Companies with existing OLPs must comply with the guidelines within 180 days from the effectivity of the memorandum circular by applying for an OLP license and submitting a complete set of requirements. Those who fail to submit their application form plus the required documents will be barred from operating their OLPs.
Existing financing and lending companies must also amend their Articles of Incorporation in compliance with the circular within the 180-day period.
The SEC may, at its discretion, set a limit on the total number of OLPs that may be established. The Commission shall take into consideration the total number of applications received, OLPs already existing, and its effects on the industry and the general public.
The draft Memorandum Circular on the Guidelines on the Registration and Licensing of Online Lending Platforms may be accessed through the SEC website. All interested parties have until December 3 to submit their comments and inputs to the CGFD by email to email@example.com.