Law Summary
Form of Organization
- Financing companies must organize as stock corporations under the Corporation Code.
- At least 40% of voting stock must be Filipino-owned.
- Minimum paid-up capital varies by location: P10 million (Metro Manila/1st class cities), P5 million (other cities), P2.5 million (municipalities).
- Existing companies pre-dating the law must comply within one year.
- Corporate name must include terms indicating financing activity.
Rights and Powers of Financing Companies
- May engage in quasi-banking and money market operations with BSP approval.
- May engage in trust operations subject to General Banking Act and BSP approval.
- Authorized to issue bonds and capital instruments, rediscount papers with government financial institutions.
- Participate in government-sponsored loan/credit programs.
- Provide foreign currency loans/leases to exporters or foreign currency earners subject to BSP.
Registration Requirements
- Submission of application under oath with corporate documents, information sheets, personal information sheets, police and NBI clearances, certificates of good moral character, credit information, and BSP clearance if applicable.
- Publication of notice in a newspaper for two consecutive weeks.
- Interested parties may oppose registration within 15 days after last publication.
- Certificate of Authority to Operate issued if requirements are met and no valid opposition.
Certificate Issuance and Commencement of Operations
- SEC registers articles and issues Certificate of Authority if public interest is served and requirements complied with.
- Operations must commence within 120 days under penalty of fine (minimum P10,000) or revocation.
- Possible grace period of 60 days.
Branch and Agency Operations
- Establishing branches, agencies, extension offices, or units requires SEC prior approval.
- Application must include personnel clearances, information sheets, and publication of notice.
- Number and location depend on company's capacity and community absorption ability.
- Additional capital required depending on location (Metro Manila/1st class cities: P1 million; Other cities: P500,000; Municipalities: P250,000).
- Branch operations must commence within 120 days or face penalties or revocation.
- Branch authority coterminous with head office.
BSP Regulatory Applicability
- Financing companies with quasi-banking licenses, subsidiaries or affiliates of banks or quasi-bank financial intermediaries, and those with trust operations are regulated by BSP.
- They must comply with BSP prior to SEC certification.
Licensing and Annual Fees
- Fee of 0.1% of paid-up capital for Certificate of Authority issuance.
- Similar 0.1% fee for each branch or agency certificate.
- Annual fees vary by location and office type (head office fees range from P2,500 to P10,000).
Loan and Investment Limitations
- Real estate investments limited to 25% of net worth.
- Minimum 50% of funds must be invested in financing activities.
- Total credit to directors/officers/stockholders capped at 15% of net worth.
- Credit to any single entity limited to 30% of net worth.
- Interest not recognized on overdue loans beyond maturity.
- 100% allowance for probable losses on long delinquent loans or impaired collateral.
Negotiability and Transfer of Receivables
- Sale or assignment of evidence of indebtedness regulated and limited.
- Sales permitted only to designated financial institutions.
- Pension and educational assistance funds must receive on recourse basis.
Maintenance of Net Worth
- Net worth must not fall below capital requirements for organization and branch operations.
Prohibitions
- Discounting, factoring, and leasing cannot be secondary corporate purposes.
- Unauthorized persons or entities cannot conduct financing company business or use related terms in names.
Reporting Requirements
- Quarterly and annual audited reports required, including financial statements, aging of receivables, liabilities, and lists of officers and stockholders.
- Changes in key personnel must be reported promptly along with documentary requirements.
- Additional reports may be required by SEC or BSP.
Administrative Sanctions
- Violations can result in suspension or revocation of Certificate of Authority, fines between P10,000 and P100,000, and other sanctions.
- Officers and directors may be subject to separate actions.
Cease and Desist Orders
- SEC can issue orders without prior hearing to prevent grave injury or fraud.
- Such orders suspend authority to operate.
- Hearing scheduled within 15 days and decision within 30 days to lift order or impose sanctions.
Repealing and Transitory Provisions
- This regulation replaces previous related SEC rules.
- Existing entities considered licensed under these new rules but must surrender old certificates and comply within one year where new provisions apply.
Effectivity
- Rules take effect 15 days after publication in two newspapers of general circulation.