19 November 2021

SEC PREPARES GUIDELINES FOR REGISTRATION OF

ONLINE LENDING PLATFORMS

The Securities and Exchange Commission (SEC) has issued the draft guidelines for
the registration and operation of online lending platforms (OLPs), in line with efforts to
stamp out abusive and predatory practices.

The Commission released for public comment the draft guidelines on November 19,
following the imposition of a moratorium on the registration of new OLPs on November
5.

The proposed guidelines will apply to both existing and newly registered financing and
lending companies who have yet to own, operate or utilize OLPs and other modes of
financial technology (fintech), as well as those who are already engaged in fintech,
who look to provide their credit products and related services.

Under the proposed guidelines, no financing or lending company will be allowed to

own, operate, or use OLPs or engage in fintech without registration and prior approval
by the SEC. The company’s ability to engage in fintech must also be included in its
purpose as stated in its Articles of Incorporation.

Further, the names of the OLPs shall be registered as business or trade names of the
financing or lending company, pursuant to SEC Memorandum Circular No. 13, Series
of 2019, which provides the Amended Guidelines and Procedures on the Use of
Corporate and Partnership Names.

Aside from being duly registered and licensed as financing or lending companies,
applicants for an OLP license must also have at least five directors and at least two
independent directors, or such number that that will constitute 20% of the members of
the board of directors, whichever is higher.

The applicant should submit certain documents to the Commission, including a

detailed business and operational plan containing the company’s compliance with
Republic Act No. 3765, or the Truth in Lending Act (TILA), and SEC Memorandum
Circular No. 19, Series of 2019 (SEC MC 19) on the Disclosure Requirements on
Advertisements of Financing Companies and Lending Companies and Reporting of
Online Lending Platforms.

Further, the applicant financing or lending company must show compliance with SEC
Memorandum Circular No. 18, Series of 2019 (SEC MC 18) on the Prohibition on
Unfair Debt Collection Practices of Financing Companies and Lending Companies;
Republic Act No. 9510, or the Credit Information System Act; and SEC Memorandum
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Office of the Commission Secretary
Breezeway 3F PICC Secretariat Building
Philippine International Convention Center (PICC) Complex
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Circular No. 28, Series of 2020 on the Requirement for Corporations, Partnerships,
Associations, and Individuals to Create and/or Designate E-mail Account Address and
Cellphone Number for Transactions with the Commission.

The SEC Corporate Governance and Finance Department (CGFD) will then evaluate
the documents submitted by the applicant company. The financing or lending company
will then present its business and operational plan as well as its marketing strategy,
target market, interest rates, loan products, and services before a panel of
representatives from the SEC.

The financing or lending company will likewise provide a walk-through of the OLP
simulating actual user experience, its complaint-handling process, and a discussion
on the extent of data to be collected by the OLP and how they will be handled.

The SEC panel will then submit its recommendation to the Commission En Banc, who
will decide on whether to grant or deny the application. The Commission En Banc’s
decision will be considered final. Rejected financing and lending companies may
reapply after one year and should demonstrate that the reason for rejection no longer
exists.

Under the draft guidelines, the OLP license shall have an initial validity of one year
from the issuance date, subject to periodical examination and renewal by the SEC.

The validity of the license will depend on the financing or lending company’s
compliance with reportorial requirements and no violations of TILA, SEC MC 18, SEC
MC 19, and other reportorial requirements for the immediately preceding year, among
others.

Financing and lending companies who have been granted OLP licenses should report
any change or termination of the OLP to the SEC not less than 10 days before
implementing such change or termination.

Those with existing OLPs who wish to develop, own, operate, or utilize additional OLPs
shall apply anew for the prospective OLP.

Financing companies who fail to comply with the conditions of the OLP license will be
subject to penalties amounting to P100,000 for the first offense and P200,000 for the
second offense. Similarly, lending companies will be subject to penalties of P50,000
and P100,000 for the first and second offense, respectively.

For the third offense, the SEC may impose a fine of not less than twice the basic
penalty but not more than P1 million; suspension of the OLP license for 60 days; or
revocation of the OLP license, as appropriate for each circumstance. The Commission

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Office of the Commission Secretary
Breezeway 3F PICC Secretariat Building
Philippine International Convention Center (PICC) Complex
Pasay City
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may also impose a daily penalty of P400 and P200 for financing and lending
companies, respectively, on top of the basic penalties.

Depending on the gravity of the offense, the SEC may proceed with the suspension or
revocation of the company’s Certificate of Authority to Operate as a Financing or
Lending Company (CA) and primary license.

Financing and lending companies, which commence the operations of OLPs, without
complying with the guidelines shall have their CAs or primary licenses suspended or
revoked, depending on the facts, circumstances, and gravity of the offense.
Companies with existing OLPs must comply with the guidelines within 180 days from
the effectivity of the memorandum circular by applying for an OLP license and
submitting a complete set of requirements. Those who fail to submit their application
form plus the required documents will be barred from operating their OLPs.

Existing financing and lending companies must also amend their Articles of
Incorporation in compliance with the circular within the 180-day period.

The SEC may, at its discretion, set a limit on the total number of OLPs that may be
established. The Commission shall take into consideration the total number of
applications received, OLPs already existing, and its effects on the industry and the
general public.
The draft Memorandum Circular on the Guidelines on the Registration and Licensing
of Online Lending Platforms may be accessed through the SEC website. All interested
parties have until December 3 to submit their comments and inputs to the CGFD by
email to cgfd_md@sec.gov.ph.

END

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Office of the Commission Secretary
Breezeway 3F PICC Secretariat Building
Philippine International Convention Center (PICC) Complex
Pasay City
8888-8141;8818-5478