Understanding Financial Consumer Safeguarding in the Digital Age: Simplifying SEC’s Financial Consumer Protection Act (FCPA) Guidelines
by: Atty. Peter Paul P. Cagurangan
The Philippine financial system has greatly benefited from rapid digitalization, offering consumers easy and convenient access to various financial products and services. However, this growth has been accompanied by a rise in scams and unscrupulous practices, which can pose threats to our financial stability.
To address these concerns, President Rodrigo Roa Duterte signed the Financial Products and Services Consumer Protection Act (Republic Act No. 11765 or “FCPA”) into law on May 6, 2022. The law aims to protect consumers and foster stability in the Philippine financial system.
On November 17, 2022, the BSP released Circular No. 1160 or the Amended Regulations and Guidelines on Financial Consumer Protection Framework to implement FCPA on November 17, 2022. The Framework applies to all financial products or services created, developed, offered, or marketed by Banko Sentral-Supervised Institutions.
Meanwhile, the Securities and Exchange Commission (SEC), adopted the “SEC Rules and Regulations of the Financial Products and Services Consumer Protection Act of 2022” or otherwise referred to as “SEC FCPA IRR”) on April 25, 2023, which took effect on May 14, 2023. These rules apply to all financial products and services under the SEC’s jurisdiction. We provide below a discussion of the key matters covered in the foregoing IRR.
As a preliminary, the SEC FCPA IRR has identified the departments within the SEC to oversee its implementation, namely: (1) the Company Registration and Monitoring Department; (2) Corporate Governance and Finance Department who shall supervise registered financial service providers, public companies, and accredited microfinance non-governmental organizations; (3) Market and Securities Regulation Department who is tasked to manage issuers of registered securities, including those tokenized or in digital forms, registered intermediaries and market professionals, and registered investment advisers; (4) Enforcement and Investor Protection Department who shall handle financial consumer complaints related to investment fraud; and (5) SEC extension offices.
Additionally, the SEC FCPA IRR outlines the obligations of financial service providers, covering areas such as board and senior management oversight, product design and delivery, transparency, fair client treatment, privacy protection, and the establishment of consumer assistance mechanisms.
Here is a simplified breakdown of these duties of financial service providers regulated by the SEC:
- Board and Senior Management Oversight: The board of directors approve and oversee the Consumer Protection Risk Management System (CPRMS) while senior management ensures that the practices align with the approved CPRMS.
- Product Design and Delivery: Financial service providers are mandated to regularly evaluate which allows financial consumers to consider the costs and risks of a financial product or service without pressure.
- Transparency and Disclosure: Financial service providers must ensure full disclosure and utmost transparency, empowering financial consumers to make informed decisions.
- Fair Client Treatment: Financial service providers should treat their consumers without discrimination and with professional competence.
- Privacy Protection: Financial service providers are directed to prioritize client privacy protection in line with the Data Privacy Act.
- Consumer Assistance Mechanisms: The SEC FCPA IRR requires financial service providers to establish efficient channels to address complaints, inquiries, and requests from financial consumers.
SEC FCPA IRR introduces a securities market professional called the investment adviser and is defined as any person who, for compensation, engages in the business of providing advice to others regarding the value of investment products or the advisability of investing in, purchasing, or selling such products. Prior to engagement in the business of or assuming the role of an investment adviser, registration with the SEC is mandatory.
Finally, the SEC FCPA IRR enhances the safeguarding of financial consumers by invalidating any provision of a contract for a financial product or service which waives or otherwise deprives a financial consumer of any right granted under the IRR.
In conclusion, the SEC FCPA IRR plays a crucial role in enhancing consumer protection, maintaining financial stability, and promoting accountability in the Philippine financial system. These guidelines set clear standards for financial service providers, fostering a reliable and resilient financial landscape. By working collaboratively, regulators, financial institutions, and consumers can achieve a secure, consumer-centric financial ecosystem.
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Peter is a Junior Associate and a member of the Litigation, Labor, Corporate, and Intellectual Property Departments of the Firm.
Peter’s practice includes representing clients in civil, criminal, and labor cases. Peter assists business entities in trademark registration and maintenance. He is involved in estate planning and settlement of the estates. Peter’s recent transactions include handling cases filed by and against a major bus company in the Philippines, cases involving family relations law, labor matters of various companies, trademark registration and monitoring, and settlement of estates.
