A ‘CIS’ law at last?

When I was president of the Philippine Stock Exchange, I pushed for the enactment of several laws, which were meant to boost the economy and develop our capital markets.

These bills, authored by the Angara father-and-son tandem in Congress, are now part of the law of the land.

Among these were the Personal Retirement Account Act under RA 9505 (Peraa), Real Estate Investment Trust Act under RA 9856 (Reita), DST exemption for stock market trading under RA 9243, the Financial Rehabilitation and Insolvency Act under RA 10142  (FRIA), and the Credit Information and System Act under RA 9510 (Cisa).

Except for the Reita which has been impounded by the Aquino Administration, all these laws are now being implemented. Recently, the Bangko Sentral ng Pilipinas (BSP) formally launched the Pera system after putting up the logistical infrastructure to support its operation.

One of my unfinished legislation  was the Collective Investment Schemes Law (CISL) that was envisioned to govern collective investment schemes (CIS).  The more advanced markets in the Asean like Singapore and Malaysia had long enacted a similar law.

A CIS is “any arrangement whereby funds are solicited from the investing public and pooled together for the purpose of investing, reinvesting and/or trading in securities or other investment assets or different classes thereof.”

Under the proposed CISL, a CIS may be a juridical CIS, organized as a corporation or partnership and issues shares of stock or units of participation to its investors.  It  may also be a contractual CIS, organized pursuant to a contract, for which units of participation representing an undivided interest in the pool of investment assets are issued to the investors.

Presently, the more popular types of CIS products are mutual funds (MFs), unit investment trust funds (UITFs), and variable universal life insurance policies (VULs).

Each of these investment products is governed by different rules and regulations separately issued by the BSP, SEC and Insurance Commission. Also, the tax consequences applicable to each type of CIS differ.  There is, thus, regulatory and tax arbitrage among these investment products.

The proposed CISL seeks to level the playing field and provide uniform tax and regulatory framework for all CIS products.  It  is also envisioned to lay the legal framework for  new investment products  such as  exchange-traded funds, real estate investment trusts and special purpose entities or trusts  to raise capital for much-needed infrastructure projects. It can accommodate investment products that now exist  in other markets but not yet available locally due to our archaic investment laws. It is flexible enough to accommodate new investment products that foreign markets may come up with.

It also seeks to arrest the proliferation of investment scams that have victimized our countrymen partly because of lack of investment products in the country.  In this regard,  the SEC has estimated at one point that one in every 100 Filipinos has fallen prey to  investment scams, wiping out more than P25-billion worth of hard-earned money.

There are policy issues that still need  to be resolved such as whether there should be a single regulator for all CIS products and the appropriate tax framework to encourage their public trading to help expand our capital markets.

Fortunately, the House of Representatives—led by Congressmen Arthur Yap, Joey Salceda, Khalid Dimaporo and Dax Cua—is hard at work on the proposed bill.  The  last meeting, which lasted for more than six hours, was a technical working group meeting  attended by various stakeholders including the  BIR, BSP, DOF, IC, SEC, PSE and representatives of concerned industries.

Here’s keeping my fingers crossed that this overdue and forward-looking law, which has been languishing in the legislative mill for almost a decade now, will soon see the light of day.

The author, formerly president and chief executive officer of the Philippine Stock Exchange,  is now a senior partner of the Angara Abello Concepcion & Regala Law Offices and president of the Shareholders’ Association of the Philippines. The views in this column are exclusively his. He can be contacted through [email protected]