BANKING FINALS REVIEWER 2019 5.
That over neither of them there be any retention or
Joseph R. Malcontento
1st Semester, A.Y. 2019-2020
1. DEPOSITS AS SECURITY
WHAT IS A HOLD-OUT AGREEMENT?
A hold-out agreement usually accompanies an assignment of deposit
maintained in the lending bank and held in the Philippines. This
agreement prohibits the withdrawal of the deposits, which serve as
security for a loan or credit accommodation by the assigning
depositor until the loan is paid or extinguished.
COUPLED WITH A SET-OFF CLAUSE TO BE MORE EFFECTIVE
For good measure, the depositor is also made to consent to a
conventional compensation or set-off. In this respect, as ruled in Yau
Chu v. Court of Appeals, the application of the deposit in payment of
a loan or credit accommodation without foreclosure would not be
construed as pactum commissorium under Art. 2088 of the New Civil
Code.
A set-off provision is advisable because the depositor may not
necessarily be the borrower. A bank’s right to set-off over one’s
deposit is only applicable if the depositor is at the same time the
debtor of the bank. If the depositor is merely accommodating a
borrower, a contractual stipulation is necessary to effect a set-off.
A hold-out cum set-off arrangement is enforceable independent of the
absolute assignment structure, even if both recourses are contained in
one agreement. Thus, if the absolute assignment is declared invalid,
the bank still has the hold-out and set-off as protection.
IN STRUCTURING AN ASSIGNMENT OF RECEIVABLES WHICH
WOULD NOT BE DEEMED A PLEDGE, THE DEED OF
ASSIGNMENT MUST:
1. Provide for an absolute transfer of title to the deposit from
the depositor to the bank. The deed of assignment must not
contain the words “by way of security” or other similar language
which negates an absolute conveyance of the deposit. Art. 1454
of the New Civil Code recognizes the validity of an absolute
conveyance of property made in order to secure the performance
of an obligation.
2. Clarify that the assignment is not intended to discharge the
loan until the deposit is actually applied in payment of the
loan.
3. Provide for the reconveyance of the deposit, or what remains
of it, to the depositor upon full payment of the loan.
4. For good measure, contain a clause stating that nothing in the
deed of assignment is to be construed as creating a pledge of
deposit or other security interest therein.
REQUISITES OF LEGAL COMPENSATION; CONVENTIONAL
COMPENSATION AND TRADERS BANK v. CASTANARES
Under Art. 1279 of the New Civil Code, legal compensation may be
proper if the following requisites are fulfilled:
1. Each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other; (i.e.
mutual debtors and creditors of one another).
2. Both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable;
controversy commenced by third persons and communicated
in due time to the debtor. (i.e. compensation will not
prejudice third persons).
 But there can be conventional compensation, pursuant to
Art. 1282 of the New Civil Code, when parties agree upon
the compensation of debts which are not yet due. In
Trader’s Bank v. Castanares, the only requirements for
conventional compensation are: a) that each of the parties
can fully dispose of the credit he seeks to compensate,
and b) that they agree to the extinguishment of their
mutual credits.
o Thus, conventional compensation only requires
requisites Nos. 1 and 5 aforementioned.
2. POWER OF A BANK TO GUARANTEE OBLIGATIONS
Under Sec. 74 of the General Banking Act (old law), banks were
generally prohibited from issuing guarantees, except in certain
circumstances, including item (e) of said section which allowed
“letters of credit transactions, including standby arrangements”.
Hence, under the old law, bank guarantees were usually in the
form of standby letters of credit. This is no longer the case under
the General Banking Law of 2000, since:
 The prohibitive provisions of Sec. 74 of the General Banking
Act were no longer restated under the General Banking Law.
Thus, banks may now issue guarantees in any form and not
limited to the exceptions found under the old law.
 Sec. 35.6 of the General Banking Law allows bank guarantees
in favor of other banks.
 Guarantees are now included in the computation of the SBL
under Sec. 35 of the General Banking Law.
WHAT IS AN AVAL? CAN A BANK BE AN AVALISTA?
An aval is an example of a guarantee not within the general coverage
of Art. 2047 of the New Civil Code. An aval guarantees the
payment of drafts already accepted by the drawee. The rules
pertaining to an aval are found on Arts. 486-487 of the Code of
Commerce.
Prior to the passage of the General Banking Law of 2000, there was
some doubt whether a bank can be an avalista because of the
prohibitory language of Sec. 74 of the General Banking Act.
Considering that Sec. 74 is not restated under the General Banking
Law of 2000, it is clear that a bank may now be an avalista.
Aval comes from an old French word for “foot or bottom” and its
terms are usually written down by the avalista on the draft itself -
conceivably at the foot of the draft, but possibly at the side thereof.
3. MORTGAGE/PLEDGE/ANTICHRESIS
IF A LOAN IS SECURED BY A PLEDGE AND A MORTGAGE AND
THE LENDER FORECLOSED ON THE PLEDGE BUT LEAVING A
DEFICIENCY, MAY THE LENDER SUBSEQUENTLY FORECLOSE
THE MORTGAGE?
No, because under Art. 2115 of the New Civil Code, the sale of the
thing pledged shall extinguish the principal obligation, whether or not
the proceeds of the sale are equal to the amount of the principal
obligation, interest and expenses in a proper case. If the price of the
sale is less, neither shall the creditor be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary.
A mortgage contract is merely an accessory contract to the principal
obligation. Since the loan obligation in this case has already been
extinguished by the foreclosure of the pledge, the mortgage contract
is also extinguished by operation of law.

What the lender should have done is to foreclose the mortgage first.
Since the law allows a creditor to claim the deficiency after
foreclosing a mortgage (except chattel mortgages under the Recto
Law), the lender could further recover the same by foreclosing the
pledge.
Note: Under the Act No. 3135 (Extrajudicial Foreclosure of Real
Estate Mortgage) and Act No. 1508 (Chattel Mortgage Law), there is
no provision prohibiting the creditor from making a deficiency claim
after the foreclosure sale. Furthermore, under Rule 68 of the Rules of
Court, a creditor-plaintiff in a petition for judicial foreclosure may
recover upon motion any deficiency after the foreclosure sale.
AFTER-ACQUIRED OBLIGATION CLAUSES IN MORTGAGE
AND PLEDGE; PRUDENTIAL BANK v. ALVIAR DOCTRINE
A real estate mortgage (and pledges) may cover after-acquired
obligations because Art. 2091 of the New Civil Code provides that
the contract of pledge or mortgage may secure all kinds of
obligations, be they pure or subject to a suspensive or resolutory
condition.. An after-acquired obligation clause is also known as a
“dragnet clause” or a “blanket mortgage clause”, which is a valid
stipulation in a contract which parties may freely agree upon.
In Prudential Bank v. Alviar, a dragnet clause is meant to subsume all
debts of past or future origins and operates as a convenience and
accommodation to the borrowers as it makes available additional
funds without their having to execute additional security documents.
However, when the subsequent obligations are secured by other
security arrangements (i.e. chattel mortgage or hold-out agreements),
the lender cannot immediately invoke the dragnet clause and
foreclose the real estate mortgage. The lender must first foreclose the
other security arrangements first.
The rationale behind this ruling is that the parties having conformed
to the dragnet clause, it is reasonable to conclude that they also
agreed to an implied understanding that subsequent loans need
not be secured by other securities, as the subsequent loans will be
secured by the first mortgage. Although a dragnet clause is present
in the first mortgage, the borrower-mortgagor is not prohibited
thereby from procuring other securities for his subsequent loans.
Thus, when the mortgagor takes another loan for which another
security was given it could not be inferred that such loan was
made in reliance solely on the original security with the "dragnet
clause," but rather, on the new security given. This is the
"reliance on the security test."
AFTER-ACQUIRED PROPERTY CLAUSES IN MORTGAGE
CONTRACTS; ACME SHOE v. CA DOCTRINE
After-acquired property may be the subject of a contract of pledge or
real estate mortgage, since Art. 1306 of the New Civil Code provides
that the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public
policy.
However, under Sec. 7 of Act No. 1508 (Chattel Mortgage Law), a
chattel mortgage shall be deemed to cover only the property
described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depository as the
property originally mortgaged, anything in the mortgage to the
contrary notwithstanding.
For a chattel mortgage to validly cover after-acquired property, the
parties must execute a new or supplemental chattel mortgage
covering such properties.
REDEMPTION PERIOD IN EXTRAJUDICIAL FORECLOSURE OF
REAL ESTATE MORTGAGE; R.A. NO. 133 and 10641
In extrajudicial foreclosure of real estate mortgage, there is always a
right of redemption. Under Sec. 6 of Act No. 3135, as amended, the
debtor, his successors in interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the property
is sold, may redeem the same at any time within the term of 1 year
from and after the date of the sale.
However, under Sec. 47 of the General Banking Law of 2000, if the
mortgaged property of a borrower/mortgagor who is juridical
person is extrajudicially foreclosed, the latter shall have the right
to redeem the property until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than 3 months after
foreclosure, whichever is earlier.
Note: If the original mortgagee is a bank and the mortgagor is a
juridical entity, Sec. 47 of the General Banking Law applies. What if
the mortgagee-bank assigns it rights to the mortgaged properties to a
non-bank entity, who forecloses the mortgage extrajudicially, what
redemption period can the mortgagor avail of, the shorter period
under Act No. 3135 or the longer period under the General Banking
Law? The period under Sec. 47 of the General Banking Law,
since the non-bank entity merely steps in the shoes of the original
mortgagee-bank and acquires all the right and obligation of the
latter. Thus, the mortgagor has to redeem the property until, the
registration of the certificate of foreclosure sale with the which in
no case shall be more than 3 months after foreclosure, whichever
is earlier.
In judicial foreclosure of real estate mortgage, there is only an equity
of redemption, where the mortgagor may extinguish the mortgage
and retain ownership of the property by paying the mortgage debt
within a period of 90-120 days from entry of judgement.
Under Sec. 1 of R.A. No. 133, private real property may be
mortgaged for a period not exceeding 5 years, renewable for another
5, in favor of any individual, corporation, or association, but the
mortgagee or his successor in interest, if disqualified to acquire or
hold lands of the public domain in the Philippines, shall not bid
or take part in any sale of such real property as a consequence of
such mortgage.
But now under Sec. 6 of R.A. No. 10641, foreign banks which are
authorized to do banking business in the Philippines shall be
allowed to bid and take part in foreclosure sales of real property
mortgaged to them and accordingly take possession of the
mortgaged property, for a period not exceeding 5 years from actual
possession: Provided, That in no event shall title to the property be
transferred to such foreign bank. In case said bank is the winning
bidder, it shall, during the said 5-year period, transfer its rights to
a qualified Philippine national, without prejudice to a borrower’s
rights under applicable laws.
 A foreign bank-mortgagee can only bid and take part in the
foreclosure of real estate mortgaged to them. It does not
authorize them to participate in the foreclosure of assets
mortgaged to other banks.
 Sec. 6 of R.A. No. 10641 only covers foreign banks, not other
foreign creditors, who still fall under the prohibition under Sec.
1 of R.A. No. 133.
WHAT IS A BULLET LOAN? A BALLOON LOAN?
A bullet loan is a loan with a maturity of not more than 5 years and
may be paid in one lump sum at the very end of the maturity period.
 Under Sec. 44 of the General Banking Law of 2000, in cases of
a loan or credit accommodation with a maturity exceeding 5
years, there must be annual amortizations, which need not be
equal/substantially equal.
A balloon loan is a loan where the last amortization, if not the last
few, will be larger than the earlier amortizations.
4. TRUST RECEIPTS; RELEVANT DOCTRINES
ALLIED BANK v. ORDONEZ
The penal provisions of P.D. No. 115 applies to goods covered by
a trust receipt which do not form part of the finished products
that are ultimately sold, but are instead utilized in the operation of
the equipment and machineries of the entrustee-manufacturer (i.e.
capital assets).
NG v. PEOPLE
Impliedly overturned the holding in Allied Bank. The Supreme Court
ruled that transactions discussed in relation to trust receipts mainly
involve sales, and since the subject goods were not intended for sale
but for use in the fabrication of steel communication towers (i.e. the
business of the entrustee), such transaction is not a trust receipt
transaction.
HUR TIN YANG v. PEOPLE
When both parties enter into an agreement knowing fully well that
the return of the goods subject of the trust receipt is not possible
even without any fault on the part of the trustee, it is not a trust
receipt transaction penalized under Sec. 13 of P.D. No. 115 in
relation to Art. 315, par. 1(b) of the Revised Penal Code.
The only obligation actually agreed upon by the parties would be the
return of the proceeds of the sale transaction. This transaction
becomes a mere loan, where the borrower is obligated to pay the
bank the amount spent for the purchase of the goods.
ROSARIO TEXTILE v. HOME BANKERS
The doctrine of res perit domino does not apply in trust receipt
transactions and the entrustee bears the risk of loss of the subject
goods under the trust receipt transaction.
If under the trust receipt, the bank (entruster) is made to appear as the
owner, it was but an artificial expedient, more of legal fiction than
fact, for if it were really so, it could dispose of the goods in any
manner it wants, which it cannot do, just to give consistency with
purpose of the trust receipt of giving a stronger security for the
loan obtained by the importer. To consider the bank as the true
owner from the inception of the transaction would be to disregard the
loan feature thereof.
5. COMFORT LETTER
Classifiable as unsecured would be loans backed by so-called comfort
letters (also known as letter of awareness, letter of responsibility,
letter of undertaking, or inducement agreements). A comfort letter is
usually issued by a parent company to induce a bank to extend a
loan to a subsidiary or an affiliate. It is not a guarantee at all and its
enforceability against the issuer is doubtful, considering that it merely
states the intention of the issuer to maintain the fiscal integrity of
the proposed borrower or not to dilute the latter’s stockholdings.
At best, it merely provides a “cold comfort” to the bank and serves to
entice the latter to extend a loan to the person or entity endorsed.
A parent company issues comfort letters because:
1. The parent company may be subject to a loan agreement that
prohibits the issuance of guarantees.
2. A parent company’s guarantee obligation may be required to
appear as a footnote in its financial statements, and this might
not be acceptable to it. In contrast, a comfort letter is not
required to be footnoted.
3. The parent company’s internal corporate policy prohibits the
issuance of guarantees for the borrowings of a subsidiary or an
affiliate
6. PURPOSE OF AN OMNIBUS AGREEMENT
Under the NIRC, separate documentary stamp taxes are imposed on
the loan agreement or promissory note (the principal obligation) and
on the underlying security arrangements (accessory obligations) such
as the mortgage or antichresis. As a tax-minimizing structure, the
Omnibus Agreement consolidates the principal and accessory
obligations into one document, so that the parties would only pay
one documentary stamp tax. The Omnibus Agreement becomes
more useful if the amount of the principal obligation is relatively high
and is secured by multiple security arrangements.
7. PROJECT FINANCE
Under the Manual of Regulations of Banks, project finance is defined
as a method of funding in which the lender looks primarily to the
revenues generated by a single project, both as a source of
repayment and as security for the exposure. It possesses all the
following characteristics either in legal form or economic substance:
1. The exposure is typically to an entity (often a special purpose
entity or SPE) which was created specifically to finance and/or
operate physical assets;
 This SPE is the project company formed by the
sponsors or proponents of a certain project.
2. The borrowing entity has little or no other material assets or
activities, and therefore little or no independent capacity to
repay the obligation, apart from the income that it receives from
the asset(s) being financed;
 The sponsors/proponents of the project usually inject
equity therein in exchange for shares of stock. The
project company also borrows from 3rd party sources
like the ADB, CDC, and other local banks. These
borrowings are governed by omnibus loan and security
agreements or promissory notes.
3. The terms of the obligation give the lender a substantial degree
of control over the asset(s) and the income that it generates; and
 One of the documentations of project financing is a
deed of assignment where the proceeds of the project
are assigned to the lenders. The revenues of the project
will be deposited or remitted in a Trust Retention
Account (TRA), which has several sub-accounts (i.e.
debt servicing account, contractors account, staff
account etc.) Interest payments and revenues
remitted to lenders are funneled from the TRA into
these sub-accounts. This is called the lender-
controlled cash waterfall account.
 There is an off-taker, which pertains to the persons or
entities which will use the product or avail of service
provided by the project (e.g. the riding public in case
of a railroad project). Without an off-taker, there is no
project financing since there will be no source of
revenue.
4. As a result of the preceding factors, the primary source of
repayment of the obligation is the income generated by the
 asset(s) being financed, rather than the independent capacity of a
broader commercial enterprise.
 Project finance is without recourse to the project
company. Thus, lenders will derive their payments
from the proceeds of the project.
8. DERIVATIVES and the “ISDA”
Under Sec. 3 of the Implementing Rules and Regulations of the
Securities Regulation Code, a derivative is a financial instrument
whose value changes in response to changes in a specified interest
rate, security price, commodity price, foreign exchange rate,
index of prices or rates, credit rating or credit index, or similar
variable or underlying factor. It is settled at a future date.
Meanwhile, Sec. X611 of the Manual of Regulations of Banks
defines derivatives as a financial instrument whose value depends
upon the performance of the underlying variable. They are
essentially contracts of difference where parties agree to an agreed
price at a certain date, which may be different from the actual price
on that date. Derivatives are essentially mechanisms for hedging
risks.
Derivatives include, but are not limited to, the following:
1. Options, which may either be a:
 Call option which gives the holder the right, but not the
obligation, to buy an underlying security at a predetermined
price called the exercise or strike price, on or before a
predetermined date, called the expiry date.
 Put option which gives the holder the right, but not the
obligation, to sell an underlying security at a predetermined
price called the exercise or strike price, on or before a
predetermined date, called the expiry date.
2. Warrants or rights to subscribe or purchase new or existing
shares in a company on or before a predetermined date.
3. Forward contracts, which are contracts for the purchase and sale
of commodities or currencies at a future date. It obliges one
party to buy and the other to sell commodities at a specified
price at a specified date. The gain or loss in a forward contract
depends on the gap between the agreed upon price and the actual
market price on the specified date. It includes:
 In the money - made the right decision to enter into the option.
(say you expect the US Dollar to increase to P55 to $1, and
come the predetermined date the exchange rate is P60 to $1,
then you exercise your right to purchase dollars at P55 strike
price)
 Out of the money - not exercise the option and let the forward
lapse so that only the premiums are lost. (say you expect the US
Dollar to increase to P55 to $1, and come the predetermined date
the exchange rate is P50 to $1, you do not exercise your right to
purchase dollars at P55 since the exchange rate is lower than
what you expected)
 At the money - may exercise the option or to buy the commodity
outright but for practical reasons, it is better to exercise the
option. (say you expect the US Dollar to increase to P55 to $1,
and come the predetermined date the exchange rate is actually
P55 to $1, then you may exercise your right to purchase dollars
for practical reasons).
4. Currency Swaps, which involve a simultaneous purchase and
sale of currencies between the same parties at a future date.
ISDA stands for International Swaps and Derivatives Association,
which facilitates the over-the-counter purchase of derivatives. A
product of the ISDA is the ISDA Master Agreement, which is a
standardized agreement covering derivative transactions. The ISDA
Master Agreement consists of several agreements which form part of
one whole agreement, such as the a) Master Agreement, b)
Schedules, and c) Confirmations. Each underlying agreement may be
amended and needs to be confirmed. This type of agreement
prevents an insolvent party from discriminately choosing
favorable provisions or contracts (in the money transactions) and
rejecting the ones disadvantageous to it (out of the money
transactions). This is called cherry-picking.
WHAT IS A CREDIT LINK NOTE?
It is a credit default swap which serve as a credit protection device.
9. SECURITIZATION
Under Sec. 3(a) of R.A. No. 9267, securitization means the process
by which assets are sold on a without recourse basis by a seller to a
Special Purpose Entity (SPE) and the issuance of asset-backed
securities (ABS) by the SPE which depend, for their payment, on the
cash flow from the assets so sold and in accordance with the plan of
securitization approved by the SEC.
The process of securitization goes as follows:
1. The originator (the original obligee of the assets) transfer the
assets (loans, receivables, or similar financial assets with an
expected cash payment stream) to a special purpose entity
(SPE), which could be a special purpose corporation (SPC)
or trust (SPT). Pursuant to Sec. 12 of R.A. No. 9267, the
transfer must be a “true sale” wherein the transferred assets
are legally isolated and put beyond the reach of the
originator or seller and its creditors. Simply put, the sale
must be irrevocable and without recourse.
2. The SPE shall finance the purchase price through the issuance of
asset-backed securities. The issuance of asset-backed securities
requires approval of the SEC, unless the issuance of such
securities fall under an exempt transaction or security under
Securities Regulation Code.
3. If the SPE is thinly capitalized, which is the usual case, credit
enhancements are resorted to.
4. Usually, the originator is appointed as the servicer to collect the
payments of the underlying assets from the original obligor and
remit the same to the SPE.
5. The consent of the original obligors are not required before the
true sale of receivables are made by the originator to the SPE,
since under Art. 1625 of the New Civil Code, an assignment of
credit will only require notice to the original obligor.
WHY IS A TRUE SALE REQUIRED?
If the sale is irrevocable and without recourse, the assets are protected
from the reach of the creditors of the originator in the case the latter
turns bankrupt or insolvent. Thus, the cash flow of payments would
not be impeded. This explanation is supported Sec. 3(b) of R.A. No.
9267, which provides that the repayment of the assets-backed
securities shall be derived from the cash flow of the assets.
The originator, which is usually a bank or financial institution, would
naturally be interested in reducing regulatory costs. Thus, a true sale
of assets means it is off its balance sheet, which in turn usually results
to less reserve requirement to back the receivables.
10. DUE DILIGENCE INVESTIGATION
Due diligence investigation is the careful examination of a
corporation’s books, documents and records along with its assets
and liabilities to determine the real value and financial status of
the corporation.
There are two types of due diligence investigations:
 Acquisition due diligence, which involves the determination of
a corporation’s value when there is a merger or
 consolidation. The acquiring firm/corporation ascertains the
financial status and productivity of the corporation sought to
be bought, in order to determine whether the latter is
insolvent or is about to be so and is not only attractive on
paper.
 Prospectus due diligence, which is performed by corporations
who are about to sell their securities to the public through an
initial public offering. Sec. 8 of the Securities Regulation Code
requires a corporation to register its securities with the SEC
before it sells or offers to sell the same to the public.
Furthermore, prior any sale, information on the securities shall
be made available to each prospective purchaser. Underwriters
must also conduct a due diligence investigation in order to
determine whether the final prospectus contains a full and
fair disclosure of information regarding both the issuer and
the security sought to be sold to the general public. The aim
of these rules is to protect the public from fraudulent or
manipulative devices and practices.
11. ANTI-MONEY LAUNDERING ACT
COVER TRANSACTION REPORT v. SUSPICIOUS TRANSACTION
REPORT
Under Sec. 2(x), Rule 2, of the 2018 Implementing Rules and
Regulations of R.A. No. 9160, a “covered transaction report” refers
to a report on a covered transaction filed by a covered person before
the Anti-Money Laundering Council (AMLC). The Rules define a
covered transaction as:
1. A transaction in cash or other equivalent monetary instrument
exceeding P500,000.
2. A transaction with or involving jewelry dealers, dealers in
precious metals, and dealers in precious stones, in cash or other
equivalent monetary instrument exceeding P1M.
3. A casino cash transaction exceeding P5M or its equivalent in
other currency.
Meanwhile, under the same Rules, a “suspicious transaction report”
refers to a report on a suspicious transaction filed by a covered person
before the AMLC. Such report may be made, regardless of the
amount involved, whenever any of the following circumstances are
present:
1. There is no underlying legal or trade obligation, purpose or
economic justification;
2. The client is not properly identified;
3. The amount involved is not commensurate with the business or
financial capacity of the client;
4. Taking into account all known circumstances, it may be
perceived that the client’s transaction is structured in order to
avoid being the subject of reporting requirements under the
Anti-Money Laundering Act;
5. Any circumstance relating to the transaction which is observed
to deviate from the profile of the client and/or the client’s past
transactions with the covered person;
6. The transaction is in any way related to money laundering,
terrorist financing, or related unlawful activity that is about to be
committed, is being or has been committed; or
7. Any transaction that is similar, analogous or identical to any of
the foregoing, such as the relevant transactions in related and
materially-linked accounts.
Covered institutions shall report to the AMLC all covered
transactions and suspicious transactions within 5 working days from
occurrence thereof, unless the supervising authority concerned
prescribes a longer period not exceeding 10 working days.
DOES AMLA COVER DOLLAR-DENOMINATED INVESTMENT IN
GOVERNMENT SECURITIES, OR DID THE FOREIGN
CURRENCY DEPOSIT ACT PROTECT SUCH INVESTMENTS
FROM AMLA?
The secrecy of foreign currency deposits under Sec. 8 of R.A. No.
6426 or the Foreign Currency Deposit Act only covers foreign
currency deposits authorized under said law and does not extend to
foreign currency-denominated investments in government securities.
Hence, the Anti- Money Laundering Council may inquire into such
since they are within the ambit of “covered transactions” under Sec. 3
(b) of R.A. No. 9160, as amended.
12. REGISTRATION OF SECURITIES
Pursuant to Sec. 8 of the Securities Regulation Code, the general rule
is that all securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly filed
with and approved by the SEC. Prior to such sale, information on the
securities shall be made available to each prospective purchaser. The
purpose of the registration requirement is to ensure full and fair
disclosure about securities and to minimize if not totally eliminate
insider trading and other fraudulent or manipulative devices and
practices which create distortions in the free market. The exemptions
to the registration requirement are:
1. The exempt securities under Sec. 9 of the Securities Regulation
Code. The exemption from the registration requirement applies
not only during their initial issuance, but also to their subsequent
transfers. These include:
a. Any security issued or guaranteed by the Government of
the Philippines, or by any political subdivision or agency
thereof, or by any person controlled or supervised by, and
acting as an instrumentality of said Government.
o The Government cannot become insolvent
because of its inherent power to tax.
b. Any security issued or guaranteed by the government of
any country with which the Philippines maintains
diplomatic relations, or by any state, province or political
subdivision thereof on the basis of reciprocity.
o Principle of international comity and international
relations between sovereign States.
c. Certificates issued by a receiver or by a trustee in
bankruptcy duly-approved by the proper adjudicatory
body.
o The issuance of these securities were already
duly-approved by a proper court, tribunal, or
body; consequently, the general public are
protected when they transact with such
certificates.
d. Any security or its derivatives the sale or transfer of which,
by law, is under the supervision and regulation of the
Office of the Insurance Commission, HLURB, or the
BIR.
o Such securities are already regulated and
monitored the aforementioned government
agencies, thus it would be superfluous for SEC to
register them once again.
e. Any security issued by a bank except its own shares of
stock.
o Such securities are already regulated and
monitored by the BSP, thus the SEC need not
register them once again.
2. The exempt transactions under Sec. 10 of the Securities
Regulation Code. The exemption from the registration
requirement applies only to the present transaction, but not to
 subsequent transfers which are not in themselves exempt
transactions. These include:

a) Sale to qualified buyers, such as banks, registered investment

houses, insurance companies, investment companies, pension
fund or retirement plan maintained by the Government of the
Philippines or any political subdivision thereof or managed by a
bank or other persons authorized by the BSP to engage in trust
functions, or other persons as the SEC may rule by determine as
qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in
financial and business matters, or amount of assets under
management. This transaction does not require registration
because these qualified buyers do not need the protection of the
law as compared to general public.

b) Private placement proper, which involves the sale of securities

by an issuer to not more than 19 persons in the Philippines
during any 12-month period. This does not require registration
because there is essentially no sale of securities to the “public”.
A private placement has two kinds: a sale to qualified buyers or
a sale to non-qualified buyers not more than 19 persons in the
Philippines during any 12-month period.

3. Offshore securities offering or sale, since the Philippines has

no jurisdiction over these transactions, based on the principle of
territoriality.

“TRUTH-IN-SECURITIES LAW”

An essential policy behind the enactment of the Securities Regulation

Code is to ensure full and fair disclosure about securities and to
minimize if not totally eliminate insider trading and other fraudulent
or manipulative devices and practices which create distortions in the
free market. To this end, Sec. 8 of the Securities Regulation Code,
provides that all securities shall not be sold or offered for sale or
distribution within the Philippines, without a registration statement
duly filed with and approved by the SEC. Prior to such sale,
information on the securities shall be made available to each
prospective purchaser. This is only the general rule, as certain
securities and transactions are exempt from the registration
requirement, pursuant to Sec. 9 and 10 of the Securities Regulation
Code, respectively. The registration requirement seeks to eliminate
information asymmetry in the securities market and to properly
guide and inform the general public as to the nature of such
transactions, thereby protecting potential investors and enhancing
the public’s confidence in the capital market.

The full and fair disclosure system allows the general public to make
a more informed decision in buying securities.

Violations of the Securities Regulations Code, including non-

compliance with the registration requirement, making untrue
statements or omitting material facts therein, may give rise to
administrative sanctions (i.e. suspension/revocation of registration of
securities and heavy fines) under Sec. 54 and civil liabilities against
persons responsible under Sec. 56 and 57 of the Securities
Regulations Code, unless it is proved that at the time of such
acquisition the person acquiring such security knew of such untrue
statement or omission or if the latter’s cause of action is barred by
prescription pursuant to Sec. 62 of the Securities Regulation Code.