Disclosure Requirements – Philippines
Disclosure Category: 2
In markets referred to under Category 2, applicable legislation obliges CBL, as a custodian, to disclose details of its account holders to issuers and/or to foreign regulators or market authorities on request.
In the Philippines, the Bangko Sentral ng Pilipinas (BSP) Anti-Money Laundering Rules and Regulations stipulates a disclosure of information by the beneficial owner to prevent and identify suspicious transactions that may be used for money laundering purposes and to protect the integrity of the Philippines banking system. Beneficial owners are also required to report threshold crossings in beneficial ownership of listed equities, bank stocks and bank stocks held in the name of PCD Nominee Corporation.
In addition, the BSP has further amended the country’s foreign exchange regulatory framework by issuing Circular 838, which provides the amendatory guidelines to Section 37 of the Manual of Regulations on Foreign Exchange Transactions.
Consent
Clients holding Philippines shares must consent and are hereby deemed to consent to disclosure. Such consent includes the appointment of the requestor (for example, the BSP or the issuer of the Filipino shares) as their attorney-in fact, under power of attorney to collect from CBL such information as is required to be disclosed. Clients not willing to give this consent cannot hold such shares in their account with CBL.
Disclosure requirements
Beneficial owners will need to provide CBL with the following information and/or documentation immediately upon the request of BSP so that the documents can be forwarded to the BSP via CBL’s depository in the Philippines:
- Certificates of Registration issued by a regulatory body;
- Articles of Incorporation or Association and By-Laws and/or other constitutive documents;
- Principal business address;
- Mandate or Board or Partners’ Resolution authorising the signatory to sign on behalf of the entity;
- Latest General Information Sheet or similar document (listing the names of directors/trustees/partners, principal stockholders owning at least 20% of the outstanding capital stock and primary officers such as the President and Treasurer);
- Contact numbers of the entity;
- Source of funds and nature of business.
Background and legal basis
BSP issued BSP Circular 706-11 that updated the Anti-Money Laundering regulations to effectively implement the provisions of Republic Act 9160 and 9194. The regulation applies to covered institutions1 supervised and regulated by the BSP, including their subsidiaries and affiliates. The updated rules stipulate that a covered institution may rely on the client identification process performed by a third party2 provided that the latter has conducted the requisite client identification requirements to establish the existence of the ultimate client, and that the third party has in its custody all the minimum information/documents required from the client. The covered institution may also obtain identification documents as stated above from the third party upon request without delay. Additional requirements may have to be submitted in specific circumstances.
Sanctions
Sanctions for non-compliance with disclosure of beneficial ownership rules
Sanctions per Section X811 (“Sanctions and Penalties”) of BSP Circular 706 will be applied on the covered institutions supervised and regulated by the BSP, including their subsidiaries and affiliates, for non-compliance with said BSP Circular 706-11.
In addition, except for the description that the monetary penalties shall be in accordance with the existing regulations, the actual application of the monetary penalties varies depending on the overall assessment of the BSP on the covered institution.
Obligation to report threshold crossings
The primary basis for disclosure of threshold crossings in the Philippines is provided in the Securities Regulation Code (SRC), more particularly in provisions of 18.1 (Disclosure Reports to be filed by 5% Beneficial owners) and 23.2 (Reports to be filed by Directors, Officers and Principal Stockholders) as well as certain disclosure requirements provided in the Circulars issued by the BSP.
Listed equities
Beneficial owners are required to disclose the beneficial owner of the related shares to the Securities and Exchange Commission (SEC) and submit either Form 18-A or Form 23-A available from the Philippines SEC website http://www.sec.gov.ph/ when beneficial ownership in the listed equity exceeds 5% and 10% of the beneficial ownership of the outstanding shares held by the related company. These forms are also required to be completed when beneficial ownership subsequently reduces to below 5%.
The initial and subsequent disclosure levels as per the SEC’s requirement on all listed equities are as follows:
- 5% beneficial ownership of the outstanding shares held by the related company (Form 18-A within five business days from trade date);
- Any material change in the disclosure information, such as acquisition of another 5% or increase in ownership by 5%, within three business days from trade date;
- 10% beneficial ownership (Form 23-A within 10 calendar days after the earlier of:
- The effective date of the registration statement for that security; or
- The date on which the investor becomes such beneficial owner, subsequent to the effective date of the registration statement);
- 10% beneficial ownership on an aggregated basis (Form 18-A within five business days from trade date).
Disinvestment disclosure requirements are also in place for all listed equities and beneficial owners are required to disclose and report when there is:
- Any material change in the previously submitted disclosure information (as indicated above – Form 18-A and Form 23-A) such as decrease in threshold within three business days from the trade date.
Once ownership goes down to 5% or less of the beneficial ownership of the outstanding shares held by the related company, a last disclosure will be made within three business days with no further reporting thereafter, unless the shareholder’s position again reaches the 5% threshold. - Any change in ownership during the month, within 10 calendar days after close of calendar month.
Once ownership goes below 10% of the beneficial ownership of the outstanding shares held by the related company, a last disclosure will be made with no further reporting thereafter on the 10% disclosure, unless the shareholder’s position again reaches the 10% threshold.
If the decrease results in ownership in the 5%-10% range, then disclosure requirements on 5% will apply.
Sanctions for non-compliance with reporting of threshold crossings rules
The SEC may impose penalties for late filing, non-reporting and incomplete reporting of the disclosure of 5% and 10% beneficial ownership, as follows:
Legal Basis / Report | Violation | First Offence | Second Offence | Third Offence |
Section 18 of SRC; SRC Rule 18 5% ownership disclosure (SEC FORM 18-A/18-AS) | Late Filing of Report | 1% of the amount of each purchase or disposition, or 10,000 per transaction whichever is higher plus 100 per day of delay | 2% of the amount of each purchase or disposition, or 20,000 per transaction whichever is higher plus 200 per day of delay | 3% of the amount of each purchase or disposition, or 30,000 per transaction whichever is higher plus 300 per day of delay |
Non-Filing of Report | 2% of the amount of each purchase or disposition, or 20,000 per transaction whichever is higher plus 200 per day of delay | 3% of the amount of each purchase or disposition, or 30,000 per transaction whichever is higher plus 300 per day of delay | 4% of the amount of each purchase or disposition, or 60,000 per transaction whichever is higher plus 500 per day of delay | |
Incomplete of Report | 10,000 plus 100 per day of delay of the submission of the amended report | 20,000 plus 300 per day of delay of the submission of the amended report | 30,000 plus 600 per day of delay of the submission of the amended report | |
Section 23 of SRC; SRC Rule 23 10% ownership disclosure
| Late Filing of Report | 1% of the amount of each purchase or disposition, or 10,000 per transaction whichever is higher plus 100 per day of delay | 2% of the amount of each purchase or disposition, or 20,000 per transaction whichever is higher plus 200 per day of delay | 3% of the amount of each purchase or disposition, or 30,000 per transaction whichever is higher plus 300 per day of delay |
Non-Filing of Report | 2% of the amount of each purchase or disposition, or 20,000 per transaction whichever is higher plus 200 per day of delay | 3% of the amount of each purchase or disposition, or 30,000 per transaction whichever is higher plus 300 per day of delay | 4% of the amount of each purchase or disposition, or 60,000 per transaction whichever is higher plus 500 per day of delay | |
Incomplete of Report | 10,000 plus 100 per day of delay of the submission of the amended report | 20,000 plus 300 per day of delay of the submission of the amended report | 30,000 plus 600 per day of delay of the submission of the amended report |
Bank stock of a domestic Philippines bank listed on the Philippines Stock Exchange
Disclosure of relationship of family group or related interests
The Republic Act No. 8791 (An Act Providing for the Regulation of the Organisation and Operations of Banks, Quasi-Banks, Trust Entities and for Other Purposes) and BSP "Circular 332" allows for family group or related interests to hold up to forty percent (40%) of the voting stock of a domestic Philippines bank listed on the Philippines Stock Exchange. The family group or related interests must however fully disclose their relationship and status as family group or related interests when they enter into any commercial transaction or relationship with the bank.
Family group or related interests refer to individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or common-law.
Disclosure of beneficial ownership of shareholding
Beneficial owners and related interests are required to disclose the beneficial owner of the related shares and seek approval from the BSP for their holdings as per specific BSP rules in Circular 238 – “Beneficial ownership disclosure of bank shares” and Circular 332 – “Substantial shareholding reporting of all shares” (2%) when the beneficial ownership in the bank stocks reaches the following levels:
- 2% ownership of total subscribed capital, immediately when the beneficial owner knows the transaction will result in the need for disclosure;
- 5% beneficial ownership of the outstanding shares held by the related company (Form 18-A) within 5 business days from trade date;
- Any material change in the disclosure information such as acquisition of another 5% or increase in ownership by 5%, within three business days from trade date;
- 20% ownership of the outstanding shares held by the related company of voting stock requires prior approval of the Monetary Board;
- 40% ownership of the outstanding shares held by the related company of voting stock, immediately when the beneficial owner knows the transaction will result in the need for disclosure.
Disinvestment disclosure requirements are also in place on all bank stocks when there are changes in ownership from 5%. The disclosure requirements will follow that of the SEC requirements that is, any material change in the previously submitted disclosure information such as decrease in threshold within three business days. Once ownership goes down to 5% or less than 5%, a last disclosure will be made with no further reporting thereafter, unless the shareholder’s position again reaches the 5% threshold.
Related interests refer to individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or common-law.
Sanctions for non-disclosure of beneficial ownership of shareholding rules
Failure to comply with the appropriate disclosure requirements can result in reprimands and warnings as well as fines up to 2% of each transaction amount or PHP 20,000, whichever is higher, plus PHP 200.00 per day of delay for repeat offenders.
Bank stocks held in the name of PCD Nominee Corporation
The Corporate Secretaries of the Banks listed in the Philippine Stock Exchange are required to disclose the ultimate beneficial owners of the shares held in the name of PCD Nominee Corporation (PCNC) in the Consolidated List of Stockholders and Their Stockholdings including those of numbered, trust, and custodial accounts as required under Circular 718-11. This is a reportorial requirement and the obligation to disclose pertains to the Corporate Secretaries of the Banks listed in the Philippines Stock Exchange.
Sanctions for non-compliance with disclosure of bank stocks held in the name of PCD Nominee Corporation rules
Failure to comply with this requirement will subject the Bank listed on the Philippines Stock Exchange to the corresponding sanctions provided in the BSP Manual of Regulations for Banks.
Regulations on Foreign Exchange Transactions
Pursuant to Monetary Board Resolution No. 624 of the BSP dated 14 April 2014, Section 37 of the Manual of Regulations on Foreign Exchange Transactions (FX Manual) is further amended by Circular 838 with respect to the procedures and documentary requirements for the registration of inward foreign investments and other investments.
Circular 838 states that a foreign investor or the authorised representative of such foreign investor shall submit a duly completed “Authority to Disclose Information” (ATD) relating to all assets registered or held by each Philippines custodian bank for account of this investor.
Thus, CBL has submitted the “Authority to Disclose Information” to the BSP granting power to disclose to its subcustodian in the Philippines. Failure to have done so could have entailed that assets held on behalf of CBL clients may not be registered in the Philippines. The disclosure shall cover all existing assets as well as subsequent assets of non-residents held through CBL.
Pursuant to the ATD, CBL is authorising its subcustodian in the Philippines to disclose to the BSP any information that may be required by the BSP in relation to any and all assets CBL may hold with its subcustodian in the Philippines on behalf of its clients. The ATD covers the following assets:
- Equity securities, both listed and unlisted (including REITs)
- Debt securities issued by private sector residents not covered by certain provisions of the FX Manual (Loans and
- Guarantees), both listed and unlisted. These may include notes, bonds, and non-participating preferred shares
- Exchange-traded funds (ETF)
- Investment funds such as mutual funds (MF) and unit investment trust funds (UITF)
- Philippine Depositary Receipts (PDR), both listed and unlisted
- PHP time deposits with an AAB with minimum maturity of 90 days
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1. Covered institutions include banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan associations, foreign exchange dealers etc. and in this case refers to CBL’s depository.
2. Third party includes trustees, nominees, agents and intermediaries and in this case refers to CBL.
Definitions of disclosure categories and other introductory information
Disclosure requirement to prevent misuse of corporations for illicit activities
The Securities Exchange Commission (SEC), through SEC Memorandum Circular 1, series of 2021, has mandated disclosure of the persons acting as nominee directors/trustees and nominee shareholders, incorporators/applicants for incorporation or persons on whose behalf act as directors, trustees or shareholders of existing corporations of information. Otherwise, transfer or sale cannot be effected or dividends paid to any person or entity that do not appear on the company’s records. Exceptions to this disclosure requirement include sale done through the facilities of the exchange and shares lodged with the depository.
Sanctions for non-compliance with disclosure requirements to prevent misuse of corporations for illicit activities
Failure to comply with this requirement would be subject to penalties and sanctions under the applicable laws. The SEC may impose the following sanctions:
- Fine of not less than PHP 5,000 or more than PHP 2.0 million plus not more than PHP 1,000 for each day of continuing violation which shall not exceed PHP 2.0 million;
- Suspension or revocation of certificate of incorporation (if locally registered) and other penalties within the power of the SEC.
Administrative sanctions may be imposed such as filing of criminal charges against persons responsible for violation of the Revised Corporation Code.