SEC plans to ease low-risk investor rules

Citing the need to democratize investing and achieve financial inclusion in the Philippines, the Securities and Exchange Commission (SEC) plans to simplify the onboarding of Filipino investors classified as “low-risk” by stock brokers, government securities dealers and various investment-taking firms.

Based on a proposed resolution, low-risk accounts will refer to accounts of individual investors with initial and subsequent deposit or investment amounting to not more than P50,000.

An investor with a low-risk account will be allowed to invest in excess of the prescribed limit only for the purpose of exercising his/her right as a holder of securities, the nonexercise of which may result in the dilution of holdings.

The proposed easing of requirements for “low-risk” investors was in line with the SEC’s mandate to “promote the development of the capital markets, encourage the widest participation of ownership in enterprises and enhance the democratization of wealth,” it said.

SEC Memorandum Circular No. 16, Series of 2018, already permits institutions under its jurisdiction to formulate a risk-based and tiered customer acceptance, identification and retention policy that involves reduced customer due diligence (CDD) for potentially low-risk clients and enhanced CDD for higher risk accounts.

The proposed relaxation of CDD requirements will cover all SEC-regulated investment-taking entities such as broker-dealers in securities, government securities dealers, investment houses, investment company advisers and mutual fund distributors.

The 2015 implementing rules and regulations of the Securities Regulation Code prescribes a definite CDD, also known as the Know Your Customer requirements for any broker dealer in securities, with focus on establishing the customer’s real identity and creditworthiness and elicit information necessary to comply with the suitability requirements.

Subject to prior approval, the SEC is also keen on allowing a regulated financial institution to prescribe a different threshold amount for low-risk account and/or propose additional criteria other than said threshold amount.

But the SEC stressed that a regulated financial institution should still implement the necessary measures to establish the true identity and existence of its customers.