Coverage and core definitions
- “Financing companies” are stock corporations (except banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or operating under other special laws) that are primarily organized to extend credit facilities to consumers and industrial, commercial, or agricultural enterprises through direct lending; discounting or factoring commercial papers or accounts receivable; buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness; or financial leasing of movable as well as immovable property (Section 1[a]).
- “Commission” means the Securities and Exchange Commission of the Philippines (Section 1[b]).
- “Funds” means total assets inclusive of valuation reserves and deferred income, excluding investments in real estate; shares of stock of real estate development corporations or real estate-based projects; leasehold rights and improvements; fixed assets; foreclosed properties; and prepayments (Section 1[c]).
- “Credit” covers loans and numerous credit instruments/transactions, including loans, mortgages, financial leases, advances or discounts, conditional sales contracts, contracts to sell, and transactions with similar purpose or effect (Section 1[d]).
- “Financial leasing” is defined as a non-cancellable lease contract where the lessor acquires the property at the lessee’s instance and receives periodic payments sufficient to amortize at least seventy percent (70%) of the purchase price or acquisition cost, including incidental expenses and a profit margin, during a lease term of not less than two (2) years, with no obligation or option for the lessee to purchase at the end (Section 1[e]).
- “Purchase discount” is the difference between the value of the receivable purchased/assigned and the net amount paid by the financing company, exclusive of fees, service charges, interest, and other charges incident to the extension of credit (Section 1[f]).
- “Lease rentals” are the periodic payments by the lessee to the lessor under the financial leasing definition (Section 1[g]).
- “Receivable financing,” “Discounting,” and “Factoring” are defined based on whether evidence of indebtedness or open accounts are purchased/assigned and whether the arrangement is discounted below face/outstanding balances (Section 1[h]–[j]).
- “Paid-up capital” means the amount paid for subscription of stock, including amounts paid in excess of par value (Section 1[k]).
- “Networth” is the excess of assets over liabilities, net of appraisal surplus, unbooked valuation reserves, capital adjustments, overstatement of assets, and unrecorded liabilities (Section 1[l]).
Organization form and capitalization
- Financing companies must be organized as a stock corporation under the Corporation Code of the Philippines, subject to the following requirements (Section 2[a]).
- At least forty percent (40%) of the corporation’s voting stock must be owned by Philippine citizens (Section 2[b]).
- Financing companies must maintain a minimum paid-up capital based on location:
- PHP 10,000,000.00 for Metro Manila and Other 1st Class Cities
- PHP 5,000,000.00 for financing companies located in other classes of cities
- PHP 2,500,000.00 for financing companies located in municipalities (Section 2[b]).
- Financing companies duly existing and operating before the effectivity of Republic Act No. 8556 must comply with the minimum capital requirement within one (1) year from the effectivity of Republic Act No. 8556 (Section 2[b]).
- The corporate name must contain “financing company,” “finance company,” or “finance and investment company,” or other titles/word(s) descriptive of the financing company’s operations and activities (Section 2[c]).
Powers, licensing conditions, and BSP compliance
- Financing companies have the following powers, each subject to required approvals:
- Quasi-banking and money market operations require prior approval of the Bangko Sentral ng Pilipinas (BSP) (Section 3[a]).
- Trust operations require compliance with the General Banking Act and prior approval by the BSP (Section 3[b]).
- Issuance of bonds and other capital instruments is subject to pertinent laws, rules, and regulations (Section 3[c]).
- Rediscounting of paper with government financial institutions is subject to relevant laws, rules, and regulations (Section 3[d]).
- Participation in special government financial institution loan or credit programs is permitted (Section 3[e]).
- Providing foreign currency loans and leases is allowed for enterprises that earn foreign currency by exports or other means, subject to laws and BSP rules (Section 3[f]).
- The SEC allows inclusion of the foregoing rights and powers in a financing company’s Articles of Incorporation after the applicant submits the appropriate license/authority issued by the involved government agency (Section 3[b]).
- The following financing companies and their branches/agencies/extension offices/units must comply with BSP requirements prior to SEC issuance of the Certificate of Authority to Operate:
- Financing companies with quasi-banking license (Section 7[a][1])
- Financing companies that are subsidiaries/affiliates of banks (Section 7[a][2])
- Financing companies that are subsidiaries/affiliates of non-bank financial intermediaries with quasi-banking license (Section 7[a][3])
- Financing companies authorized to engage in trust operations (Section 7[a][4])
Registration, publication, opposition, and operations timeline
- Any stock corporation may be registered as a financing company by filing with the SEC:
- Five (5) copies of an application to operate as a financing company under Republic Act No. 8556
- An application signed under oath by the President
- Submission of required documents in prescribed forms (Section 4[a]).
- The application must include:
- All corporate registration documents (Section 4[a][1])
- Information Sheet of the registrant company (Section 4[a][2])
- Personal Information Sheet of each director and officers with the rank of Vice-President and up (or their equivalent) or managing partners (Section 4[a][3])
- Answers to the SEC questionnaire (Section 4[a][4])
- For each Filipino director and eligible officer to be appointed: police clearance, NBI clearance, sworn good moral character certificate executed by at least (2) reputable and disinterested persons, and bank credit information from the director/officer’s depository/creditor bank(s) if any (Section 4[a][5])
- For foreign directors/officers in lieu of police-NBI and good moral documents: clearance from the Bureau of Immigration and Deportation and photocopies of passport and Alien Certificate of Registration (ACR) (Section 4[a][5])
- Clearance from BSP if the applicant is a subsidiary/affiliate of a bank and/or non-bank financial institution with quasi-banking license (Section 4[a][6])
- Other documents as the SEC may require (Section 4[a][7])
- Upon receipt of registration papers, the SEC causes the Notice and Order to be published by the applicant at its expense in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks (Section 4[b]).
- The Notice and Order must state the proposed financing company’s name, capital structure, and the directors’ names and residences (Section 4[b]).
- Any interested party may oppose registration by written filing (personal or through counsel) within fifteen (15) days after the last date of publication of the Notice and Order (Section 4[c]).
- If the SEC finds that Republic Act No. 8556, its implementing rules, and other pertinent laws have been complied with and there is no valid reason for disapproval, the SEC issues a Certificate of Authority to Operate as a Financing Company (Section 4[c]).
- The SEC registers the Articles of Incorporation and issues a Certificate of Authority to Operate if the SEC is satisfied that:
- Compliance with Republic Act No. 8556, other existing laws, and applicable rules and regulations for the proposed business activity (Section 5[a][1])
- The organization, direction, administration, and integrity/responsibility of organizers and administrators reasonably assure protection of the general public’s interest (Section 5[a][2])
- Proof of publication under Section 4(b) has been made (Section 5[a][3])
- A financing company granted authority must commence operations within one hundred twenty (120) days from the date of the grant of the certificate (Section 5[b]).
- Failure to operate within the 120 days triggers a fine of not less than PHP 10,000.00 (Section 5[b]).
- A financing company may be granted a grace period of another sixty (60) days after the 120-day period; failure to operate within the extended period empowers the SEC, after notice and hearing, to revoke the Certificate of Authority (Section 5[c]).
Branches, units, capital add-ons, and authority term
- No financing company may establish or operate a branch, agency, extension office or unit without a prior Certificate of Authority from the SEC (Section 6[a]).
- Branch/unit applications must include:
- Information sheet of the proposed branch/unit (Section 6[a][1])
- SEC questionnaire answers (Section 6[a][2])
- Police clearance of the manager, cashier, and administrative officer from their city/municipality of residence (Section 6[a][3])
- NBI clearance of the same persons (Section 6[a][4])
- Copy of the proposed personnel chart (Section 6[a][5])
- Other documents as the SEC may require (Section 6[a][6])
- Branch/unit applications must be published under Section 4(b) (Section 6[a]).
- The number of branches/agencies/extension offices/units depends on the company’s capacity for expanded operations and/or the area’s capacity to absorb new entities, as determined by the SEC (Section 6[b]).
- A financing company must put up minimum additional capital per branch/unit, by location (Section 6[c]):
- Metro Manila and Other 1st Class Cities: PHP 1,000,000
- Other classes of cities: PHP 500,000
- Municipalities: PHP 250,000
- If a financing company has special rights and powers under Section 3, the additional capital requirement must be based on Section 6(c) or on the capitalization requirement under the rules of the appropriate government agency, whichever is higher (Section 6[c]).
- Each branch/unit must operate within one hundred twenty (120) days from issuance of the certificate of authority; failure subjects the branch/unit to a fine of not less than PHP 10,000.00 or revocation after due hearing at the SEC’s discretion (Section 6[d]).
- A branch/unit authority’s term is coterminous with the head office’s authority (Section 6[e]).
Fees and networth maintenance
- The fee for issuance of a Certificate of Authority to Operate as a financing company is 1/10 of 1% of the paid-up capital (Section 8[a]).
- The fee for issuance of original Certificates of Authority to each branch/agency/extension office/unit is 1/10 of 1% of the capital of that branch/unit (Section 8[a]).
- An annual fee is due not later than forty-five (45) days before the anniversary date, and continues as long as the license remains in effect (Section 8[b]):
- Metro Manila and other 1st class cities: Head Office PHP 10,000; Branch PHP 1,000
- Other classes of cities: Head Office PHP 5,000; Branch PHP 500
- Municipalities: Head Office PHP 2,500; Branch PHP 250
- The financing company’s networth must be maintained at an amount not less than the level required under Sections 2(b) and 6(c) (Section 11[a]).
Lending limits, investments, recognition rules
- Unless otherwise authorized by the SEC, a financing company’s total investment in real estate; shares of stock in real estate development corporations; and other real estate-based projects must not exceed 25% of its networth at any time (Section 9[a]).
- Unless otherwise authorized by the SEC, more than fifty percent (50%) of a financing company’s funds must be used or invested in financing company activities, with investments in government securities with maturity of not more than one (1) year and special savings deposits counted for this computation (Section 9[b]).
- A financing company may extend total credit to its directors, officers, and stockholders up to 15% of its networth (Section 9[c]).
- For Section 9[c], credit extended to related interests is deemed credit extended to directors/officers/stockholders, including:
- Spouse or relatives within the first degree of consanguinity or affinity, or relatives by legal adoption (Section 9[c][1])
- Partnerships where the director/officer/stockholder (or their qualified spouse/relatives) is a general partner (Section 9[c][2])
- Corporations where the director/officer/stockholder (or their qualified spouse/relatives) is also a director or officer (Section 9[c][3])
- Corporations where more than 20% of subscribed capital stock is owned by the director/officer/stockholder (or their qualified spouse/relatives) (Section 9[c][4])
- Corporations wholly or majority-owned or controlled by entities mentioned in Sections 9[c][2]–[4] (Section 9[c][5])
- A financing company’s total credit to any person/company/corporation/firm must not exceed 30% of its networth (Section 9[d]).
- Unless collected, interest income must not be recognized on loans and lease receivables that remain outstanding beyond their maturity dates (Section 9[e]).
- A 100% allowance for probable losses must be set up for specified categories of loans/receivables (Section 9[f]), including:
- Clean loans and advances past due for more than six (6) months (Section 9[f][1])
- Past due loans secured by collateral (inventories, receivables, equipment, other chattels) that have declined in value by more than 50% without the borrower offering additional collateral (Section 9[f][2])
- Past due loans secured by real estate mortgage title subject to an adverse claim rendering foreclosure doubtful (Section 9[f][3])
- Borrower and co-maker/guarantor is insolvent, whereabouts unknown, or earning power permanently impaired (Section 9[f][4])
- Accrued interest receivable uncollected after six (6) months from the maturity date (Section 9[f][5])
- Accounts receivable past due for 361 days or more (Section 9[f][6])
Transfer/negotiation limits on receivables
- Negotiation, sale, or assignment of evidence of indebtedness by a financing company must follow the SEC’s rules on registration of commercial papers and comply with the 19-lender limit allowed to a financing company without quasi-banking license under Republic Act No. 337 (Section 10[a]).
- Factored or discounted accounts, lease receivables, and other evidence of indebtedness (not covered by Section 10[a]) may not be sold, assigned, or transferred in any manner except to specified entities, including:
- Banks (including their trust accounts)
- Trust companies
- Non-bank financial intermediaries authorized to engage in quasi-banking functions
- Investment houses (including their trust accounts)
- Financing companies
- Investment companies
- Non-stock savings and loan associations
- Insurance companies
- Government financial institutions
- Pension and retirement funds approved by the Bureau of Internal Revenue
- Educational assistance funds established by the National Government (Section 10[b]).
- Negotiation of evidence of indebtedness to pension funds or educational assistance funds must be on a recourse basis (Section 10[b]).
Prohibitions on business holding out
- A corporation must not include discounting, factoring, and leasing (as defined) as one of its secondary purposes (Section 12[a]).
- Unless authorized under Republic Act No. 8556, no person, association, partnership, or corporation may:
- Engage in the business of a financing company (Section 12[b][1])
- Hold itself out as a financing company through advertisements, stationery, commercial paper, other documents, or other representations (Section 12[b][2])
- Use a trade or firm name containing “Financing,” “Leasing,” “Finance and Leasing,” “Finance and Investment,” or any other designation giving the impression that it is engaged in the business of a financing or leasing company (Section 12[b][3])
Periodic reporting duties
- Every financing company must file with the SEC:
- A quarterly report within 45 days from the end of each fiscal quarter, including:
- Statement of Condition as of the end of the most recent fiscal quarter and Statement of Income and Expenses for the period between the end of the preceding fiscal year and the end of the most recent fiscal quarter (Section 13[a][1])
- Schedule of aging of receivables showing maturity pattern:
- due within 1 year and due over 1 year
- due within one year further broken down into current and past due
- past due subdivided into within 1 year past due, past due for over 1 year, and accounts under litigation
- collateral disclosures for accounts over one year past due and accounts under litigation (Section 13[a][2])
- Schedule of liabilities identifying creditors and using the maturity pattern required for receivables aging (Section 13[a][3])
- List of officers, directors, and stockholders (Section 13[a][4])
- Five copies of audited financial statements within 120 days after the end of the fiscal year (Section 13[b])
- Within 7 working days of a change, a report to the SEC of changes in board membership/composition; officers from the rank of vice president and up (or equivalent); branch manager; cashier; and administrative officer (Section 13[c])
- Within 30 working days from the date of the change, submission of the requirements prescribed under Section 4(a)(3) and Section 4(a)(5) and Section 6(a)(3) and Section 6(a)(4) (Section 13[c])
- Such other reports as the SEC may require (Section 13[d])
- Such other reports as the BSP may require (Section 13[e])
- A quarterly report within 45 days from the end of each fiscal quarter, including:
- All reports must be signed under oath by the company’s principal executive officer and principal financial officer (Section 13).
Administrative sanctions and cease-and-desist
- If the SEC finds violations of Republic Act No. 8556, these Rules, the terms and conditions of the Certificate of Authority, any SEC order/decision/ruling, refusal to have books audited, or continuous failure to comply with SEC requirements, the SEC may impose any or all sanctions listed, at its discretion (Section 14[a]).
- Sanctions include:
- Suspension or revocation of the Certificate of Authority after proper notice and hearing (Section 14[a][1])
- A basic fine of not less than PHP 10,000 and PHP 100 for each day of continuing violation, with a total fine ceiling of PHP 100,000 (Section 14[a][2])
- Other sanctions within SEC power (Section 14[a][3])
- Administrative sanctions do not prevent institution of appropriate action against the officers/directors or any person who participated directly or indirectly in the violation (Section 14[b]).
- The SEC may issue a Cease and Desist Order:
- Motu propio after proper investigation or verification, or upon verified complaint by an aggrieved party (Section 15[a])
- Without necessity of a prior hearing if the SEC judges that the act/practice may cause grave or irreparable injury or prejudice to the investing public, or may amount to fraud or violation of Republic Act No. 8556 or SEC rules (Section 15[a]).
- Issuance of a Cease and Desist Order automatically suspends the authority to operate as a financing company (Section 15[b]).
- After issuance, the SEC furnishes parties a copy and schedules a hearing not later than 15 days after service of notice (Section 15[c]).
- Within 30 days from submission for resolution, the SEC decides whether to lift the Cease and Desist Order or impose administrative sanctions under Section 14 (Section 15[d]).
Repeal, transitory handling, and compliance window
- These Rules supersede the NEW RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF R.A. 5980 (THE FINANCING COMPANY ACT) as amended, dated October 16, 1991.
- All other SEC rules, regulations, orders, and memorandum circulars inconsistent with these Rules are repealed or modified accordingly (Section 16).
- Corporations/partnerships registered and licensed by the SEC to operate as financing companies at the time these Rules take effect are considered registered and licensed under these Rules and governed by them (Section 17[a]).
- Existing financing companies with existing Certificates of Authority must surrender the same to the SEC upon payment of the annual fee under Section 8 to be replaced by a new Certificate of Authority (Section 17[b]).
- Where an existing corporation/partnership is affected by new provisions, it must be given a period of not more than one (1) year from the effectivity of these Rules within which to comply, unless otherwise provided (Section 17[c]).