SEC preps guidelines for registration of online lending platforms

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 offenses, 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. (PR)