SRC rules key to blocking entry of dirty money

The Philippines now has a stronger firewall against the entry of dirty money into securities like stocks or debt paper, the Securities and Exchange Commission (SEC) said yesterday.

Amid the raging controversy over the $81 million worth of illicit money that slipped last month into the local financial system, the SEC yesterday said it had strengthened its ant-money laundering framework.

The statement comes at a time when a group of stock brokers is challenging in court the implementation of 44 provisions of the 2015 implementing rules and regulations of the Securities Regulation Code.

In a statement, the SEC named eight components of the IRR which it deemed necessary to prevent such funds from flowing into the local capital market.

The first IRR provision cited was that which prohibits brokers from maintaining “numbered accounts” for trading and investment purposes of their clients or their own. (SRC Rule 51.1.6.7)  Related to this, the SEC cited a rule “absolutely prohibiting anonymous accounts, accounts under fictitious names and other similar accounts (SRC Rule 52.1.6.11).

The third safeguard cited by the SEC is a provision requiring brokers to maintain an electronic database of the information provided in the customer account information form, including the trading account code, in a system wherein any information may be easily obtained or extracted.

“The database shall be made available to the SEC during the conduct of audit, (SRC Rule 52.1.6.14),” the SEC statement said.

The fourth safeguard is that which prohibits brokers from creating new accounts without face-to-face meeting (SRC 51.1.6.12).

The fifth safeguard is a provision on basic know-your-customer (KYC) compliance which requires brokers to maintain for each account the essential information about their customers such as the customer’s name, residence address, office address, principal business address and their corresponding phone numbers and e-mail addresses, mobile phone number, trading account code, occupation of customer and details on employer, identification card (if employed), source of funds, nationality, signature of the salesman of brokers who introduced the account and signature of the partner, office or manager who accepted the account. (SRC Rule 52.1.6.1)

The sixth safeguard is that which requires brokers to have on file all the anti-money laundering law resolutions and respective updates (SRC Rule 52.1.1).

Another safeguard cited is one that requires brokers to have websites showing the names, current photos and contact details of their directors, principal officers, associated persons and salesmen.  “This will allow the investing public to easily verify if the person transacting with them are indeed licensed and connected with the brokerage firms (SRC 28.1.2.5.1 (n),” the SEC said.

Recently, a former Philippine Stock Exchange employee – Jose Cecilio “Jay” Penaflor – has been accused of selling as much as P300 million worth of stocks even if he was not licensed to do so.

The eighth provision cited was that which would enable the SEC to “conduct effective surveillance and investigation by requiring brokers to provide the regulator access to particular accounts, orders, trading account codes and the names of clients corresponding to such codes, for reconstruction of trade events (SRC Rule 39.1.1.5.6).”

The IRR took effect on Nov.9 last year, the SEC pointed out.

The Philippine Association of Brokers and Dealers Inc. (PASBDI) has questioned in court a number of provisions in the IRR, including those requiring disclosure of beneficial owners of shares of stocks.

SEC Chair Teresita Herbosa has countered that “there is no broker secrecy” in Philippine laws, adding that stock brokers could not demand the same confidentiality provisions as those given to bank accounts.

PASBDI argued that certain provisions of the IRR were contrary to the Constitution as it denied them due process and even impaired the obligation of contracts.