Amendments to the Implementing Rules and Regulations of the Investment Company Act, as Amended

July 24, 2020 CORPORATE GOVERNANCE AND FINANCE DEPARTMENT NOTICE The Commission hereby requests comments and/or inputs on the attached draft Memorandum Circular on the Amendments to the Implementing Rules and Regulations of the Investment Company Act, as amended. Please submit duly signed written comments on the exposure draft to the Corporate Governance and Finance Department through electronic mail at [emailprotected] using the template provided. HTcADC It is further requested that the comments/inputs be submitted not later than 07 August 2020 (Friday) . Issued on July 24, 2020. ATTACHMENTS Comments on the Draft Memorandum Circular on the Amendments to the Implementing Rules and Regulations of the Investment Company Act, as Amended Name: _________________________ Company: _______________________ Provisions on the Draft Circular Comments Proposed Revision Estimated Monetary Implications (Savings/Costs) of the proposed amendment SEC Memorandum Circular No. ___ Series of 2020 TO : INVESTMENT COMPANIES FUND MANAGERS OTHER ENTITIES DEALING WITH INVESTMENT COMPANIES SUBJECT : AMENDMENTS TO THE IMPLEMENTING RULES AND REGULATIONS OF THE INVESTMENT COMPANY ACT, AS AMENDED WHEREAS , Section 35 (a) of Republic Act No. 2629 or Investment Company Act and Section 72 of Republic Act No. 8799 or the Securities Regulation Code (SRC), vest upon the Commission the authority to make, issue, amend, and rescind rules and regulations and orders which are necessary or appropriate to the exercise of the powers conferred upon it in the ICA and the SRC; WHEREAS , it is the policy of the State to promote the development of the capital market, protect investors, ensure full and fair disclosure about securities; WHEREAS , the Commission seeks to align the Rules with global standards and practices in order to develop the Philippine capital market that will help prepare the investment companies qualify and compete in international cross-border transactions; WHEREAS , the amended Rules and Regulations issued on 19 December 2017 needs updating for relevance, clarity, ease of use by regulated entities and on account of some procedural matters to ensure adequate protection to shareholders and unitholders; IN VIEW OF THE FOREGOING , the following rules are hereby promulgated: SECTION 1. Rule 1 is hereby amended, to read as follows: a. RULE 1 Definition of Terms xxx xxx xxx 10. Custodian shall refer to an independent third party entity duly authorized or accredited by the Bangko Sentral ng Pilipinas or the Commission to engage in the business of custodial and/ or safekeeping of investment assets of the investment company. It includes a universal or commercial bank with trust license, a non-bank entity with a trust license, a BSP-accredited custodian bank, and a registered securities depository . xxx xxx xxx b. 43. Independent Oversight Entity (IOE) an impartial committee or entity tasked to monitor the transactions and functions carried out by the Fund Manager c. 44. Investment Company Assets shall refer to assets owned by the investment company, held on behalf of stockholders/unitholders, which are either (i) assets which can be held in custody whether by physical delivery to the custodian or by way of registration in book entry form in the accounts of the Fund opened with the custodian, or (ii) other assets which by their nature cannot be held in custody such as derivative instruments which are subject to the custodian's record-keeping obligation SECTION 2. Rule 3.4 (f) is hereby amended, to read as follows: d. 3.4. Minimum Requirements. An Investment Company applying for incorporation with this Commission shall comply with the following requirements: e. x x x f. (f) It shall have a minimum subscribed and paid up capital of Fifty Million Pesos (P50,000,000.00). However, if the Investment Company is one of or part of a group of investment companies to be created or already in existence to be managed or under management by the same Fund Manager with a track record of at least five years, the minimum subscribed and paid up capital shall not be lower than One Million Pesos (P1,000,000.00) provided an affidavit must be submitted stating such track record of the Fund Manager . SECTION 3. Rule 5.1.1 (a) (i) is hereby amended, to read as follows: 5.1.1. Qualifications of a Fund Manager An Investment Company shall appoint a Fund Manager with an Investment Company Adviser. The following are the requirements for the licensing of an ICA: aScITE Paid-up capital of at least Fifty Million Pesos (P50,000,000.00) and a minimum unimpaired net worth of at least Fifty Million Pesos (P50,000,000.00) exclusive of revaluation surplus, unrealized gain in value of non-current investments, deferred income tax and other capital adjustments as may be required by the SEC. Provided further that the Fund Manager shall be required to have an additional unimpaired capital requirement of 0.02% of the excess of One Hundred Billion Pesos (P100,000,000,000.00) of the total AUM, which additional capital infusion shall be made within 30 days after the end of the fiscal year the AUM increased. However, the amount of additional capital requirement is capped at Php1 Billion. SECTION 4. Rule 5.1.2 (c) and (g) are hereby amended, to read as follows: 5.1.2. Responsibilities of a Fund Manager. The Fund Manager shall have the following responsibilities: xxx xxx xxx c. Maintain records and arrange for participants to receive accounts, reports and statements either in hard/physical copies or by electronic means such as transmitting via email with softcopy attachments to the email address provided by the participant for correspondence purposes ; The participants should be given the option to request for hardcopy accounts and reports within one month from the notification of the availability of the accounts and reports. The Fund Manager should make available, or cause to be made available, hardcopies of the accounts and reports to any participant who requests for them within two weeks of the request. Participants should also be allowed at any time to opt for hardcopies for all future reports and accounts at no cost to them. xxx xxx xxx g. Ensure that all assets of the Investment Company are deposited with an independent custodian except those which cannot be placed in the custody of the custodian such as: 1) Investments in deposits; 2) Investments in other foreign/domestic collective investment schemes provided that the custodian and transfer agent (if applicable) of the CIS is approved by local regulations or registered/authorized/approved, as the case may be, by a regulatory authority that is an ordinary or associate member of the IOSCO; and 3) OTC Derivatives. SECTION 5. Rule 5.1.9 is hereby amended, to read as follows: 5.1.9. Withdrawal of license as Fund Manager. The Fund Manager shall undertake the following procedures: xxx xxx xxx c. Submit an undertaking/affidavit of assumption of liabilities of subject company's officer, director or majority stockholder stating in effect that should third parties having claims against the corporation will appear in the future (in the next five [5] years), said officer, director or majority stockholder may be held responsible for said claims including the submission of the reportorial requirements under Rule 13.1.8 for the redemption of securities of the Investment Company in case of concurrent dissolution of the Fund Manager and the Investment Company ; xxx xxx xxx f. Submit an undertaking/affidavit of the appointed liquidator pursuant to Rule 13.1.2 (e) (i) and (ii) stating that the liquidator will assume the Fund Manager's obligation to liquidate of assets on behalf of the Investment Company, within a maximum period of six (6) months from the receipt of the Investment Company of the Order revoking the Registration Statement and its Certificate, if the Fund Manager cannot liquidate the assets of the investment company prior to the Fund Manager's dissolution. g. Submit a copy of the Escrow Agreement within ten (10) days from execution in case an escrow account has been opened for the unclaimed assets of the Investment Company in case of liquidation of the assets of the investment company due to its failure to hire a new Fund Manager under Rule 5.1.10 or concurrent dissolution of the Fund and its Fund Manager; SECTION 6. Rule 5.1.10 is hereby amended, to read as follows: 5.1.10. Failure to hire a new Fund Manager. xxx xxx xxx In case of liquidation of the assets of the investment company due to its failure to hire a new Fund Manager mentioned above or concurrent dissolution of the Fund Manager with the Investment Company , the unclaimed assets of the Investment Company shall be placed by the liquidator and/or Fund Manager in an escrow account for ten (10) years or such period until all investors have claimed their investments, whichever is sooner , after which the funds shall be escheated in favor of the government in accordance with the procedure prescribed by existing laws and rules. HEITAD SECTION 7. Rule 5.3.2. (a) and (b) is hereby amended, to read as follows: Rule 5.3.2. Independent Custodian. To be considered independent, the Custodian shall not: a. Hold directly or indirectly ten percent (10%) or more of the total number of issued shares in the Investment Company and Fund Manager or vice versa; b. Have a common shareholder in the Investment Company, or the Fund Manager who holds directly or indirectly ten percent (10%) or more of the total number of issued share capital of the Investment Company and Fund Manager. SECTION 8. Rule 5.3.3 is hereby amended to read as follows: 5.3.3. Responsibilities of a Custodian . The custodian shall have the following responsibilities: a. x x x b. Safekeep the assets of the Investment Company which shall be clearly identified and properly labeled as assets or properties of the Investment Company. Safekeeping consists of either custody or record-keeping and ownership verification duties depending on the type of asset owned by the investment company. The custody function applies to all assets which can be held in custody, whether by physical delivery to the custodian or by way of registration in book-entry form in the accounts of the investment company opened with the custodian. On the other hand, all other assets which by their nature cannot be held in custody ( e.g. , derivative instruments) are subject to the custodian's record-keeping obligation. Investments in target funds of an investment company structured as feeder fund, fund of funds or co-managed fund shall be held for safekeeping by the custodian registered/authorized/approved by local regulations or regulatory authority in its home jurisdiction that is an ordinary or associate member of the IOSCO. SECTION 9. Rule 6.4 is hereby amended to read as follows 6.4. Deposits. Investment in deposits shall be placed in a deposit-taking institution which is repayable on demand, or can be withdrawn anytime and mature within 12 months. In such case, the custodian shall only verify the ownership by the investment company and maintain a record of those assets for which it is satisfied that the investment company holds the ownership and keep that record up to date. SECTION 10. Rule 6.8 (j) is hereby amended to read as follows: j. No Investment Company shall purchase from or sell to any of its officers or directors or the officers or directors of its investment advisor/s, manager or distributor/s or firm/s of which any of them are members, any securities other than the capital stock or registered units of the Investment Company. SECTION 11. Rule 6.9 is hereby amended, to read as follows: 6.9. Additional Rules on Money Market Funds. Constant net asset value money market funds (C-NAV MMFs) are not permitted. The Fund Manager that manages an Investment Company that markets itself as a money market fund or an equivalent fund that primarily invests in high quality debt securities, deposits and money market instruments shall comply with the following: a. Shall have a cash reserve, or assets with high liquidity, low market risk and can be cashed within T+1 day, of at least ten percent (10%) of its net assets; b. Invest in any of the following: i. high quality debts securities; ii. deposits; and iii. high quality money market instruments. iv. financial derivatives for hedging arrangements . The hedging arrangement should: (a) not be aimed at generating a return; (b) result in an overall verifiable reduction of the risk of the qualifying CIS; (c) offset the general and specific risks linked to the underlying being hedged; (d) relate to the same asset class being hedged; and (e) be able to meet its hedging objective in all market conditions. c. Shall not engage in direct lending of monies. Direct lending of monies refers to an instance in which an investment company lends money or make loan directly to other entities (borrower) without intermediaries. SECTION 12. Rule 6.10 (b) is hereby amended, to read as follows: 6.10. Liquidity Requirements. For liquidity purposes, unless otherwise prescribed by the Commission, at least ten percent (10%) of the assets of an Investment Company shall be invested in liquid/semi-liquid assets. a. x x x b. The MFC may implement a decreased investment of less than ten percent (10%) of its assets in liquid/semi-liquid assets, provided, however, that it shall submit a notarized liquidity contingency plan, signed by the President of the Fund and its Fund Manager. SECTION 13. Rule 6.11.1. is hereby amended, to read as follows: xxx xxx xxx The computation and expense ratio of the investment company must be disclosed in the quarterly and annual report. SECTION 14. Rule 7.2 is hereby amended as follows: 7.2. The prospectus or materials to be disseminated by the feeder fund, fund-of-funds, or co-managed funds in connection with its offer of securities shall provide an explanation or illustration of a feeder fund or a fund-of-funds and shall likewise make available all relevant information on the target fund/s . SECTION 15. Rule 8.2. is hereby amended, to read as follows: 8.2. Daily Computation and Publication of the NAVps/NAVpu. The Fund Manager shall compute and post the net asset value per share/unit of the Investment Company on a daily basis and shall: ATICcS a. Publish such daily prices in at least two (2) national newspapers of general circulation which may be done through the industry organization/s; or b. Upload in its website or industry association, through digital portals such as its website or social media accounts; and post them daily in a conspicuous place at the principal office of the Investment Company as well as in all its branches or correspondent offices which are designated redemption centers. SECTION 16. Rule 8.6. is hereby amended, to read as follows: Rule 8.6. Valuation Error or Incorrect Price. In case of valuation error or when incorrect pricing occurs, the Fund Manager shall: Report to the Independent Oversight Entity (IOE) and Commission within five (5) business days from the valuation error or incorrect pricing is found on the: xxx xxx xxx SECTION 17. Rule 10.4 is hereby amended, to read as follows: Rule 10.4. Suspension of Redemption of Shares or Units. The Commission motu proprio or, upon the request of a Fund Manager, may suspend the redemption of securities of Investment Company if: xxx xxx xxx If the request for suspension of redemption of shares or units is made by the Fund Manager, for any of the grounds mentioned above, the approval of the Independent Oversight Entity (IOE) must be secured. SECTION 18. Rule 10.5 is hereby amended, to read as follows: 10.5. Period for the Suspension of Redemption of Shares or Units. The Commission shall provide the period of suspension of redemption which shall not be more than twenty-one (21) business days, unless an extension is approved by the Commission En Banc. The Fund Manager must report to the Commission when dealing in units of the investment company is resumed . SECTION 19. Rule 13.1.2 (e) (i) and (ii) is hereby amended, to read as follows: Rule 13.1.2. Procedures for the Suspension or Revocation of Registration of Securities and License of the Fund Manager. The Fund Manager shall carry out the liquidation of assets on behalf of the Investment Company. In all cases of revocation of the Registration Statement and Certificate of Permit to Offer Securities for Sale, the Fund Manager must liquidate the assets within a maximum period of six (6) months from the receipt of the Investment Company of the Order revoking the Registration Statement and its Certificate. e. In case of concurrent dissolution of the Fund Manager and the Investment Company, the following must be complied with: i. The Fund Manager must appoint a liquidator that will assume its obligation to liquidate of assets on behalf of the Investment Company, within a maximum period of six (6) months from the receipt of the Investment Company of the Order revoking the Registration Statement and its Certificate, if the Fund Manager cannot liquidate the assets of the investment company prior to the Fund Manager's dissolution. In such case, an Affidavit and Undertaking of the liquidator must be submitted to the Commission; ii. The unclaimed assets of the Investment Company from the date of dissolution of the Fund Manager shall be placed by the Fund Manager in an escrow account for ten (10) years or such period until all investors have claimed their investments, whichever is sooner, after which the funds shall be escheated in favor of the government in accordance with the procedure prescribed by existing laws and rules; and iii. The Fund Manager must appoint a director, officer, majority stockholder or liquidator to assume its obligation in relation to the reportorial requirements under Rule 13.1.8 for the redemption of securities of the Investment Company. In such case, an Affidavit and Undertaking of the director, officer, majority stockholder or liquidator must be submitted to the Commission. SECTION 20. Rule 13.1.8. is hereby amended, to read as follows: 13.1.8. Residual Obligation of the Investment Company with a Revoked Registration Statement. The Investment Company, or the Fund Manager, shall inform the Commission of the status of the redemption of securities every 30th of January until all the shares/units have been fully redeemed. TIADCc xxx xxx xxx In case of concurrent dissolution of the Fund Manager and the Investment Company, the person or entity that has assumed the liabilities of the Fund Manager shall file a monthly report with the Commission, within ten (10) days after the end of every month, on the redemption of securities in the immediately preceding month. The report shall include the following: 1. Number of shares redeemed; 2. Number of shareholders or unitholders whose securities were redeemed; 3. Number of shareholders or unitholders whose securities are yet to be redeemed; and 4. The reasons why their securities are not yet redeemed. This Circular shall take effect within fifteen (15) days after its publication in two (2) newspapers of general circulation. Pasay City, Philippines, ___ 2020. For the Commission: EMILIO B. AQUINO Chairperson