Protection against investment fraud | Inquirer Business
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Protection against investment fraud

President Duterte recently signed into law Republic Act No. 11765, which is dubbed as the “Financial Products and Services Consumer Protection Act.”

The law aims to protect the rights of financial consumers to, among others, (a) equitable and fair treatment; (b) disclosure and transparency of financial products and services; and (c) protection of their assets against fraud and misuse.

The Bangko Sentral ng Pilipinas, the Securities and Exchange Commission (SEC), the Insurance Commission and the Cooperative Development Authority are the regulators of the law.


It was enacted to address numerous complaints from the public about financial and investment frauds that have bilked thousands of Filipinos out of their hard-earned money.


Lately, these illegal acts have increased with the popularity of social media and other internet-based communication facilities.

With the clear definition of consumer or financial fraud and delineation of the duties and responsibilities of the regulators, the incidence of those frauds are expected to be reduced substantially.

The law defines “investment fraud” as any form of deceptive solicitation of investments from the public.

This includes Ponzi schemes and such other schemes involving the promise or offer of profits or returns that are sourced from the investments or contributions of the investors themselves.

It also covers boiler room operations and offering or selling of investment schemes to the public without the proper license from the SEC, unless the offering or selling is exempt from SEC registration.

Boiler room operation refers to the use of high-pressure sales tactics to sell stocks or other forms of financial instruments to people who are called at random.


Any person who commits investment fraud shall be liable to pay a fine of not less than P50,000 but not more than P5 million, or seven to 21 years imprisonment, or both, at the discretion of the court.

The law states that “no provision of a contract for financial product or service shall be lawful or enforceable if such provision waives or otherwise deprives a client of a legal right to sue the financial service provider, receive information, have their complaints addressed and resolved, or have their nonpublic client data protected.”

This prohibition addresses the practice of some financial product or service providers of sweet talking their clients into signing documents that are written in very small print (and filled with legal jargon) that exempt them from any liability or damages if their representations later prove to be false.

In further protecting the public, financial service providers are prohibited from employing abusive collection or debt recovery practices against their clients.

To add teeth to this prohibition, the law broadened the coverage of the people who may be held liable for the commission of investment frauds.

The financial service provider is held responsible for the acts or omissions of its directors, trustees, officers, employees or agents in marketing and transacting with clients its financial products and services.

If the financial service provider has accredited third-party service providers, it shall be solidarily liable for the latter’s marketing and transacting acts, which include debt collection from the clients.

This means, an errant financial service provider cannot escape liability by claiming its marketing agents acted in violation of its marketing regulations or was unaware they engaged in unlawful pressure tactics to enforce payment obligations.

Hopefully, this provision would put an end to the pernicious practice of some debt collectors of harassing clients who miss their payment obligation by calling them in the middle of the night, or writing to their friends or co-employees about the failure to pay the debt, or posting in social media their names and photos, to name a few.

The regulators have one year from the date of effectivity of the law to come up with its implementing rules and regulations. INQ

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TAGS: Business, investment fraud

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