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Challenges and New Policy Directions for the SEC

Keynote speech of SEC Chairman EMILIO B. AQUINO, Shareholders’ Association of the Philippines (SharePHIL) Annual General Membership Meeting, 23 October 2018, Sarika Ballroom, Dusit Thani Hotel

First and foremost, I wish to commend the Officers and Members of Shareholders Association of the Philippines (SharePhil) for their advocacy and dedication towards  the protection of investors and  in taking the cudgels to uphold the interest of  minority stockholders. Like you, the SEC has a certain bias too in seeking to fulfill its mandate to be a champion of investor protection.  To us, these investors refer largely to the small guys, the retail ones who cannot fend for themselves or afford to hire the services of the best law firms to look after their interest. Further, Sharephil’s mission to be a major player in promoting domestic capital market development through advocacy, education and enlightenment of shareholders is in all fours with the SEC’s mandate and thrust.  With our identical interest and advocacy, I look forward to an effective and working partnership with your association.

I am tasked this morning to talk about the Challenges to the SEC Leadership as well as the Policy Directions I intend to take up until the end of my term in 2025.

But before I give you the Challenges I need to hurdle, let me run through very quickly what the SEC is mandated to do.

Your SEC is both a company registrar and securities market regulator of the Philippine capital market. Unlike our favorite model and counterpart, the US SEC, your SEC is mandated to register companies while also acting as a criminal law enforcement agency. The US SEC is solely a securities commission with civil and administrative enforcement authority. Thus, aside from the Securities Regulation Code and the Corporation Code (Civil Code) which serve as our Bibles,  we implement a dozen other laws, these are:

  1. Investment Houses Law
  2. Investment Company Act
  3.  Foreign Investment Act
  4. The Financing Company Act
  5.  The Lending Company Act
  6. Omnibus Investment Code
  7. Securitization Law
  8. Credit Information System Act
  9. Personal Equity and Retirement Account Act
  10. Real Estate Investment Trust Act
  11. Anti-Money Laundering Act
  12. Microfinance Non-Government Organizations (NGOs) Act

There is still one or two laws that will lodge jurisdiction with SEC.  While being tasked with responsibility to implement new laws is an added burden on our part, we at the SEC view this as express manifestation of the trust and confidence being  reposed on us  by Congress and our policy makers on our ability and efficiency in implementing and enforcing new legislation. As I would always say, your  SEC is a  victim of its own success.

Let me now relate our agency challenges vis-a-vis the identified ten-point socio-economic agenda of our President Rodrigo Roa Duterte. Of the ten, there are at least two which we are required to focus on:

  1. Increase competitiveness and the ease of doing business; and
  2. Use of technology for modern governance and inclusive development.

I am happy to report that the Philippines’ (PH) ranking in the 2018 Global Competitiveness Report (GCR) has significantly improved to 56th from 68th place (out of 140 countries) in a report released recently by the World Economic Forum (WEF).  We are number five in Southeast Asia after Singapore, Malaysia, Thailand and Indonesia but better off than Brunei, Vietnam, Cambodia and Lao.  The report however showed that under the business dynamics pillar, time to start a business (ranked 115thout of 140), cost of starting a business (97th) and insolvency recovery rates (112th) remained weak indicators and were seen as disruptive factors for doing business.  Allow me then to dwell a little bit on the challenge we are facing in terms of online company registration.  From the manual Express Lane registration system that earned us in the late 1980s a presidential accolade now it’s presidential 8888 awards.

A. Company Registration System is an Ease of Doing Business initiative

The Company Registration System (CRS), is the SEC’s on-line and automated registration system designed to handle the entire registration process of corporations and partnerships from name verification, submission, review, payment, filing up to approval. It is an Ease of Doing Business initiative geared toward shortening the period for registration by reducing the number of steps and days involved in the registration process. Also, an integrated feature of the CRS is the generation of Tax Identification Numbers, as well as SSS, PhilHealth & Pag-Ibig registration numbers.

For the public, it is supposed to offer more convenience because they may transact with the SEC from the comfort of their own homes or offices. The only time a visit to the SEC is required is when their Certificates of Registration is to be claimed. For the SEC, it will benefit from more efficient and secure data capture, storage and retrieval.Also, there are less avenues for corruption since face-to-face transactions are eliminated.

B. CRS Performance and Issues encountered

Since going live on 17 November 2017 and until September 30, 2018, we have approved a total of 22,039 applications through the CRS. This is significantly lower than the 32,227 applications approved for the same period last year using the previous hybrid-manual I-register system. The primary reason for the lower output is that SEC continues to encounter numerous, mostly technological and system-related challenges with the CRS.

 Among them are:

  1. Applicant unfamiliarity with on-line processes;
  2. Technical adjustments/ system glitches;
  3. Slow internet speeds;
  4. Inadequate hardware to handle the surge of applications;
  5. Spurious/ non-serious applications clogging the system;
  6. 24/7 access to the public vs. 8/5 regular work week;
  7. Limited licenses, limiting the number of processors;
  8. Delay in procurement of upgrades due to acceptance issues; and
  9. Failure of I.T. governance

 C. Measures adopted to improve Performance of CRS

Despite all its problems, the SEC is committed to make the automated registration system work. In the meantime, we have instituted numerous administrative interventions to improve the efficiency of the system and enhance user experience. Among the measures implemented are:

  1. Purchase of additional Hard Disk Drives (HDD);
  2. Constant re-balancing of existing HDD’s & servers to free up disk space;
  3. Streamlining of processes and eliminating redundant procedures;
  4. SMS service to update applicants on the status of their applications;
  5. On-line status verification system;
  6. Hiring of additional contract of service personnel to augment regular plantilla as processors; (additional 17 processors)
  7. Work at home scheme for processors;
  8. Overtime work including on Saturdays and holidays;
  9. In-house Call Center facility for inquiries and assistance;
  10. Public information drives;
  11. Replacement of I.T. department head;
  12. Hiring of consultants to conduct I.T. audit and other advisory services;
  13. Fast Lane Kiosks for direct assistance to transacting public; and
  14. Fast Track Lane appointment service to speed up processing of backlogs

D. The FAST Lane and FAST-TRACK Lane

The FAST (Facilitating Automated System Transaction) Lane is an intervention we implemented in June this year to assist walk-in clients who have difficulty navigating the CRS. Processors assigned to man FAST Lane Kiosks and help the transacting public from form creation to submission/ uploading all the way to approval of certificates of registration. This service is available at the Head Office and at all Extension Offices and Satellite Offices nationwide. These kiosks have assisted over 3,000 clients in the three months it has been in operation.

The FAST-TRACK (FAST-Timely Registration Action Kiosk) is an additional transition remedy we have implemented since the first week of September. It is a hybrid manual system that seeks to facilitate the faster resolution or approval of all pending applications as of August 30, 2018 (i.e. 5,059 applications). It bypasses some of the steps in the automation process that has caused much of the slowdown in processing times. It also makes use of a scheduling application MySEC to set appointments for accommodation of clients in an orderly manner. This service is also available in all our Extension Offices nationwide. In the 28 working days since its launch, the FAST-TRACK Lane has been able to process 1,138 applications and approve 671 on the same days they were presented for a 59% approval rate. The reasons why the other 467 applications did not get same-day approval were because they either had missing compliance requirements or were not ready to pay the filing fees yet. At the Extension Offices, an additional 197 applications have been approved in a span of just 18 working days (i.e. from September 28 to October 15). This FAST TRACK processing has already been formally announced in our website and through print media. With the FAST-TRACK, we are confident that we would be able to eliminate the remaining processing backlog of 1,741 applications (as at September 30, 2018), in two (2) months time. Again, this FAST-TRACK service is only an interim measure being implemented while system and programming issues in the CRS are still being remedied.

Other solutions for implementation soon are:

  1. Installation of Multi-Protocol Label Switching system which will enhance our internet connectivity (projected by October 2018).
  2. Procurement of additional servers and HDD’s to improve processing speed and increase memory space to cope with volume projections (by end of 2018)
  3. Deployment of CRS module to Extension Offices to distribute workload handled by the main office (before end of 2018).


Company, Investments and Financial Statistical System (CIFSS)

The CIFSS is a cloud-based company information and statistical reporting system that will provide up-to-date reports containing company data and financial information (on stock and non-stock corporations, including partnerships). Apart from the generation of sectoral statistics, the system is envisioned to facilitate compliance-monitoring and enforcement functions of the Commission through its dashboards, red-flagging and/or alert mechanisms.

The system will use basic company information from the Company Registration System (CRS) and data from the AFS, General Information Sheets (GIS), General Form of Financial Statements and industry-specific Special Form of Financial Statements, including other reports, which may later be included as sources of data for the system. It will run on a fully vendor-managed cloud platform that has its own web portal to accept, validate and process digital file submissions of FS, mainly in Excel format.

Subject to availability of data, the system can generate among others, statistical reports/dashboards re: company registration and the amount of capital registered, conglomerates, inter-locking directorships, person-company relationships, percentage of foreign ownership and extent of board representation in registered firms, and the AMLA compliance of covered institutions (based on GIS data or other structured data re:  sources and uses of funds by non-profit organizations). 

It is targeted for completion within 18 months from the issuance of the Notice to Proceed.


The Commission plans to implement an XBRL-enabled platform, tagged as the Financial Reporting System.  The objectives for the implementation of the system are as follows:

  1. Eliminate encoding of significant items of the AFS, GIS and other reports;
  2. Collect high quality report contents validated at both filer and SEC side;
  3. Streamline the reporting process, and;
  4. Automated general of SEC standard reports and distribution to various internal and external stakeholders.

The FRS will utilize the features and functionalities of eXtensible Business Reporting Language (XBRL) to facilitate compliance of regulated entities to reportorial requirements of the SEC. XBRL is the open international standard for digital business reporting, managed by a global not for profit consortium, XBRL International. It is used around the world in more than 50 countries. Millions of XBRL documents are created every year, replacing older, paper-based reports with more useful, more effective and more accurate digital versions.

Moreover, the system will facilitate analysis of performance and compliance of listed companies and securities and ensure that this information is available to markets to consume and analyze.  Further, the system will provide facility to receive and make publicly available a range of corporate data.

Once all these challenges are behind us….our tagline for 2019 is:  It’s Easy at SEC.


Likewise, the Commission recognizes that technology is impacting trading, markets and the entire financial landscape with far ranging implications for capital formation and risk transfer.  It is our desire to support such breakthrough thru regulation, so last 02 August 2018, we already provided the draft rules and regulations on Initial Coin Offering for public comments, to show that the Commission is here to ensure investor protection without stifling the potential of the technology’s growth especial in terms of raising capital.

It is also worth noting that the business landscape is changing. These days, businesses are crossing borders, and they are not always physical. A lot of advancements have been made in technology. As evidence of this, Fintech and cryptocurrencies are gaining much recognition and traction.

According to Ernst & Young’s Fintech Adoption Index, 1/3 of consumers utilize at least two or more Fintech services and those consumers are also increasingly aware of Fintech as a part of their daily lives.  In the case of cryptocrurrencies, Dr. Phillip Hacker, a Research Fellow at the Centre for Blockchain Techonologies at University College London, posits that, “at an individual level, real monetary value is at stake, which in turn gives rise to investor and payment protection concerns”. He adds that “cryptocurrency investors have rights similar to those for company shareholders because they are directly affected by protocol changes in a blockchain. As such, it is apparent that there is a need to consider moves that would address these new innovations. In our dialogues with digital practitioners, I ask them the accounting treatment of ICO tokens.  It’s not that clear as yet.  I told them…how can we properly regulate these tokens if we do not know how to treat them in the issuer’s financial statements.  Are they equity? Liability? Or what have you?  Our challenge… 95% of ICOs are scams…coming no less than the creator of Ethereum, Vitalik Buterin.

In this regard, we have come up with an exposure draft of our regulations on Initial Coin Offerings and Virtual Currency Exchanges.  Please feel free to comment on them at our website. Hopefully before the end of this year, we can formally promulgate these regulations.


Last year, consistent with our mandate of investor protection and in fulfillment of the President’s vow to end oppressive 5-6 lending, the SEC launched an intensive campaign against illegal lenders. A dedicated Task Force was formed by the Commission, comprising of employees from different departments to apprehend errant individuals and companies engaged in lending activities without the required secondary license. As a result, the SEC has revoked more than 1,000 corporations and partnerships engaged in illegal lending. Further, in July 2017, the Commission had filed criminal charges against 153 individuals, including 67 foreign nationals. These charges include falsification, perjury, and violation of Republic Act No. 9474 or the Lending Company Regulation Act.  The accused are now undergoing trial.

Unfortunately, the success of the Commission’s ongoing drive against illegal lenders has resulted in further limiting available sources of credit, especially to the poor and unbanked. The market vendors, barbers, sari-sari store owners are asking us…where they can get credit access.  And this is the sector where the present dispensation would like to make a big difference if we intend to achieve our goal for an upper middle class family strata for our country.

This is where the Micro-Finance NGOs Regulatory Council or MNRC, of which the SEC is part, comes in. MF NGOs are expected to help fill the vacuum left by illegal moneylenders.  Hopefully, with the MNRC’s stewardship, MF NGOs will become the new resort for our compatriots who do not or cannot approach banks and other traditional financial institutions for credit. 

As you may know, in November 2015, Republic Act No. 10693 was passed, creating the Microfinance NGO Regulatory Council, or the “MNRC” which I chair, it provides for an accreditation mechanism that  allows eligible non-stock, non-profit corporations engaged in microfinance operations for at least three (3) consecutive years to pay a preferential tax rate of 2% based on gross receipts from microfinance operations, in lieu of all national taxes. The tax reduction fortifies the existing microfinance framework, to encourage and empower MF-NGOs to expand their outreach to unserved and underserved areas, and to entice more participants to provide much-needed credit services to poor households through microfinance activities.

         To date, the Council has accredited 32 microfinance NGOs, with a total loan portfolio of more than P32 Billion, operating in almost 2,000 branches, dispersed across all provinces, and serving nearly 5 million clientsnationwide.

         Although these numbers are promising, they are not nearly enough. In 2015, the Philippine Statistics Authority estimated poverty incidence among Filipinos at 21.6%, which translates to almost 22 million Filipinosbelow the poverty threshold, or those who cannot afford to buy their basic food and non-food needs.  While the challenge is great, it is not insurmountable, and our country’s progress for the past decade has been reassuring. Poverty incidence had consistently declined from 26.6% in 2006, to 26.3% in 2009, to 25.2% in 2012 and as I mentioned earlier, to 21.6% in 2015. With this momentum and the palpable energy generated by the passage of the Microfinance NGOs Act, we will be able to reach out to millions more of our countrymen to provide them with the capital, encouragement and institutional support that they need to unleash their natural entrepreneurial spirit.


Personally, I would like SEC to engage fully in benchmarking practices. We know where we are now. Where do we want to be in seven years? I told them Thailand is within close distance while Malaysia is a little bit far ahead…much more in the case of Singapore which is number 2 in the Global Competitive Index. But we must be able to know what they do that is right… that puts them ahead of us.

 Just to cite an example which Singapore does but we don’t.  To deepen their capital markets, they invest in strategic promotional activities:

  1. Extensive promotion and transparency from the government, including involving the press regularly, public announcements to general public and companies etc.
  2. Separate promotions department for handling roadshows and investor campaign.

 This is what I am happy about SharePhil.  You are doing your own thing in terms of investor education with the publications and the holding of investor information seminars.  I will endeavor to put up a more permanent unit in the SEC to work on investor campaign.  I have envisioned a CAMPAIGN network among public, private, academic, media, civic and NGO sectors to pursue the investor education program of SEC with a network secretariat based in SEC.  Presently, we are doing it on a hit and miss basis so long as we get to meet the budgetary requirements set for GAD.  We would seek your cooperation and expertize in this regard.

Another action to help deepen the Singapore capital markets was leveraging a broad set of stakeholders by having the private sector actively engaged for inputs regarding policy formulation and implementation.

With this regard, I would like to give some credit to SharePhil, ICD and with special mention to companero Francis Lim who has been active in pushing for the passage of the amendments of our close to 40 year old Corporation Code which has already reached third and final reading at the Senate and approved on second reading at the house.  We hope to have it approved on third reading this November and at the bicameral level before December 14.  What are the salient features of the this important piece of legislation:

 Its Objectives are:

  1. To incorporate international best standards and practices into Philippine commerce and business and address present-day realities;
  2. To encourage the creation of new businesses, contribute to the ease of doing business, strengthen corporate governance, better protect the rights of stockholders, minimize or deter corporate abuses and fraud, strengthen anti-corruption measures, and fortify the regulatory authority of the SEC.

The Key Provisions provide the following:

  1. Allows the perpetual existence of a corporation;
  2. Allows the formation of one person corporation/removes the minimum number of incorporators;
  3. Removes the requirement of subscribed and paid up capital for purposes of incorporation;
  4. Permits the electronic submission of articles of incorporation or amendments thereto;
  5. Allows the SEC to issue certificates of incorporation in the form of an electronic document;
  6. Permits attendance at meetings by remote communication;
  7. Provides for Alternative Dispute Resolution to enable corporations to resolve issues in a less-combative and more efficient environment and to utilize the expertise of the SEC in corporate matters.
  8. Strengthens the SEC through additional powers of investigation, and prosecution by increasing the penalties for violations.

The other law which we hope we can get approved at least after the passage of the Revised Corporation Code is the amendment of the Securities Regulation Code.  We have to be realistic about our timelines considering that next year is election year.  We will seek the refiling of the amendments of the SRC bill in the next congress. For your advance information, the amendments that we seek at the very least, are provisions that will allow securities violations to be inquired upon at the level of the AMLA instead of the Court of Appeals. This will allow us to pass the IOSCO requirements to become a full fledged member. The other provision that we seek to protect investors is the provision allowing disgorgement of investors funds and other asset recovery remedies.  I can assure that your SEC will exert its level best to get this much needed amendments like what we have done so far for the Revised Corporation Code.

In closing, let me thank SharePhil for your commendable advocacy in protecting investors as well as the regular conduct of this information campaign to help educate investors.  Thank you everyone for this opportunity to speak before you today.