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Ms. Jan Celine C. Abaño-Ranada
Partner
Jan Celine C. Abaño-Ranada is a Partner at SyCipLaw and a member of the Firm’s Special Projects and Banking, Finance and Securities groups. Her areas of practice include project financing, mergers, acquisitions, privatization, energy, and infrastructure.
She has extensive experience in project finance and other financing transactions in a range of industries, including energy, infrastructure, hotels, gaming and real estate development. She is also immersed in M&A work, and has led teams in projects in the banking, public utilities, manufacturing, and retail sectors.
Ms. Ranada has advised several banks that have extended financing to companies, including those engaged in the development of power plants and hotels and casinos. She has also participated in various capacities in mergers and acquisitions involving banking institutions, public utilities, manufacturing, communications, and retail companies.
She has been ranked as a “Next Generation Partner” in Banking and Finance, by The Legal 500 since 2020.
Ms. Camille Angela M. Espeleta-Castillo
Senior Associate
Camille Angela M. Espeleta-Castillo is a Senior Associate at SyCipLaw and a member of the Firm’s Special Projects, Banking, Finance and Securities, and Taxation groups. She is also a Certified Public Accountant.
Her practice areas include mergers and acquisitions, debt and capital markets, financial technology, public private partnerships, infrastructure, and energy and power.
Ms. Espeleta-Castillo regularly renders advice to clients from various regulated industries (e.g., financial technology, energy and power, lending and money services), particularly on regulatory compliance, corporate structuring and tax matters. She has extensive experience in high-value cross-border acquisitions and divestments, in addition to having acted as counsel to financial investors in private equity transactions and issuers and underwriters in capital markets transactions.
Mr. Ricardo Jesus E. Gutierrez
Senior Associate
Ricardo Jesus E. Gutierrez is a Senior Associate at SyCipLaw and is a member of the Firm’s Special Projects, Banking, Finance, and Securities, and Intellectual Property groups. His practice areas include banking and finance regulations, project financing, structured finance, mergers and acquisitions, investments, projects and energy, technology, franchising and distribution, and arbitration.
He regularly advises banks and financial institutions for regulatory compliance. He likewise advises clients on the regulatory requirements applicable to derivatives and repurchase transactions. Mr. Gutierrez also has extensive knowledge of financial technology regulations, such as those relating to online contracts, payments, and banking, and has advised a significant number of financial institutions in this area.
Mr. Gutierrez is a Senior Lecturer in the University of the Philippines – College of Law, teaching Property Law and Private International Law. He is also a Teaching Fellow and an Associate Member of the Institute of Corporate Directors (ICD).
Recent Trends in Philippine Banking Laws and Regulations: Towards Financial Inclusion and Consumer Protection
INTRODUCTION
The Philippines is among the fastest-growing economies in Southeast Asia.1 However, large traditional banks have focused on wholesale and commercial products, leaving a vast potential retail customer base underserved.2 The banking penetration rate remains among the lowest in the region at just 56% in 2021.3
Recent legislation and regulations have generally focused on addressing this gap. In 2018, Congress passed the Personal Property Security Act (Republic Act No. 11057) (“PPSA”), allowing retail customers and micro, small, and medium enterprises least-cost access to credit. In May 2022, to protect financial consumer rights and grant financial regulators powers to protect such rights, the Financial Products and Services Consumer Protection Act (“FPSCPA”) was signed into law. Additionally, in September 2022, in line with its policy of enabling responsible innovation to promote the development of an inclusive digital financial ecosystem, the Bangko Sentral ng Pilipinas (“BSP”), the Philippine central bank, issued BSP Circular No. 1153 and approved a Regulatory Sandbox Framework.
THE NEW PPSA AND ITS REGULATIONS
One of the significant developments in Philippine legislation is the passing of the PPSA, amending or repealing certain laws,4 including the Civil Code provisions on the creation of pledges and the Chattel Mortgage Law regarding the creation of chattel mortgages and registration procedures for security interests over personal property.
The PPSA was enacted to strengthen the legal framework for secured transactions in the Philippines. It provides for the creation, perfection, determination of priority, establishment of a centralised notice registry, and enforcement of security interests in personal property (tangible and intangible), except aircraft5 and ships.6
The PPSA took effect on 9 February 2019. However, its full implementation is conditioned upon the issuance of the relevant implementing rules and regulations and the establishment and operation of a new centralised registry (wherein notices of security interests may be registered). The implementing rules and regulations of the PPSA (“PPSA Rules”) were published and took effect on 3 December 2019, and directed the Land Registration Authority (“LRA”) to establish the registry within six months from that date.7 The LRA announced the soft launch of the Personal Property Security Registry (“PPSR”) on 25 March 2021 for the registration of user accounts. Until the PPSR achieves full implementation, there will be no centralised and publicly searchable registry for security interests or encumbrances in the Philippines. As of November 2023, the PPSR has not achieved full implementation or operations.
Before the PPSA, the creation of a valid security interest over personal property under Philippine law was governed by the Civil Code and the Chattel Mortgage Law. Under the PPSA Rules, however, all security interests created from 9 February 2019 until the PPSA’s full implementation when the registry is established and operational (the “Transitional Period”) will be governed by the PPSA, except that registration should be completed in accordance with the Chattel Mortgage Law. Once the registry is established, the creation of a valid security interest over personal property under Philippine law will be entirely governed by the PPSA and the PPSA Rules, except interests in aircraft and in ships.
Creation of Security Interest
The PPSA introduced new rules governing the creation and registration of security interests over personal property in the Philippines. Under the PPSA Rules, parties are free to enter into any form of security arrangements over movable property as long as the security arrangement is not inconsistent with the PPSA or the PPSA Rules. Further, subject to existing law, parties may also apply the PPSA Rules to other functional equivalents of security interests, including fiduciary transfers of title; financial lease; assignment or transfer receivables; and sale with retention of title.8
Under the PPSA, a security interest over personal property may be created by a ‘security agreement’, an operating lease for not less than one year, or the sale of an account receivable (unless otherwise stipulated by the parties in the document of sale).9 Except as otherwise provided in the PPSA, the PPSA Rules, or the agreement of the parties, a security interest will continue in the collateral notwithstanding its disposition.10 A security interest is extinguished when all secured obligations have been discharged and there are no outstanding commitments to extend the credit secured by the security interest.11
A security agreement must be in writing and signed by the parties, identify the collateral and the secured obligation, and provide for the language to be used in the agreements and notices.12 A model security agreement is annexed to the PPSA Rules.13 There is no requirement under the PPSA that the security agreement be in a public instrument, but it is advisable given the practical effects of placing documents in a public instrument.14 In creating a security interest, it is sufficient that the collateral be reasonably identified.15 The security agreement may provide for the creation of a security interest in future property or after-acquired assets, but the security interest in that property will be created only when the grantor acquires rights in it or the power to encumber it.16 The security agreement may also provide that a security interest in a tangible asset that is transformed into a product extends to that product (but it shall be limited to the value of the encumbered asset before it became part of the product).17 It may likewise provide that a security Interest in a tangible asset extends to its replacement (but it shall be limited to the value of the encumbered asset before it was replaced).18
Perfection of Security Interest
The PPSA provides that a security interest over personal property may be perfected to bind third parties through the following means: registration of a notice with the registry, actual or constructive possession of the tangible collateral by the secured creditor, or control of the investment property or deposit account.
The PPSA also sets out new rules for determining priority of security interests over the same collateral. Generally, priority is still determined by the time of perfection. However, there are specific rules that apply depending on the nature and kind of property involved.
Priority of security interests
The priority of security interests in the same collateral is generally determined by time of perfection.19 However, with respect to security interests over personal property, there are rules for determining priority for specific types of properties, such as a deposit account or investment property where the secured creditor is the deposit-taking institution, security certificates, electronic securities not held with an intermediary, electronic securities held with an intermediary, and negotiable documents.
Enforcement of Security Interest
With respect to enforcement, a secured creditor may enforce its security interest by: selling or disposing of the collateral, publicly or privately, or proposing to the debtor and grantor to take all or part of the collateral in total or partial satisfaction of the secured obligation, subject to certain notice and consent requirements.20 The debtor is also required to satisfy any deficiency. Under previous laws governing pledges, a secured creditor cannot recover any deficiency after a foreclosure sale.
THE FINANCIAL PRODUCTS AND SERVICES CONSUMER PROTECTION ACT
The FPSCPA was signed on 6 May 2022. It aims to protect the rights of financial consumers.21 It gives financial regulators, such as the BSP, powers for rulemaking, market conduct surveillance and examination, market monitoring, enforcement, consumer redress or complaints handling mechanism, adjudication, and other powers as provided by its enabling law.22 It also requires financial service providers23 to provide appropriate product design and delivery; ensure transparency, disclosure, and reasonable pricing; ensure fair and respectful treatment of clients; respect client privacy and protect client data; establish a financial consumer protection assistance mechanism; and adopt and implement information security standards.24
The law renders void any provision of a contract for financial product or service25 if the provision deprives a client of a legal right to sue the financial service provider, receive information, have their complaints addressed and resolved, or have their non-public client data protected.26
The FPSCPA provides for criminal27 and administrative sanctions28 for violations and declares as unlawful the commission of investment fraud.29
On 17 November 2022, the BSP issued BSP Circular No. 1160 to implement the FPSCPA. On 24 March 2023, the BSP issued Circular No. 1169, providing for the Rules of Procedure for the Consumer Assistance Mechanism, Mediation, and Adjudication of Cases in the BSP, to carry out the objectives of the FPSCPA and provide for just and speedy determination of complaints.
REGULATORY SANDBOX FRAMEWORK
On 5 September 2022, the BSP issued BSP Circular No. 1153 and approved a Regulatory Sandbox Framework (the “Framework”). The Framework aims to promote a more active, evidence-based, and results-driven assessment of new and emerging financial solutions.30
The Framework
The Regulatory Sandbox is a controlled, time-bound, live testing environment, featuring regulatory waivers at the regulator’s discretion, to promote the development of transformative technologies under the “test-and-learn” approach. Eligible participants must operate within testing parameters (including metrics to assess the viability of the solution being offered) agreed upon with the BSP.
The Framework applies to all BSP-Supervised Financial Institutions (“BSFIs”), third-party service providers of BSFIs, other BSP-registered institutions, and other entities that intend to offer or use any emerging or new technology to deliver financial products and services within the BSP’s regulatory authority.31
Four Stages32
The Framework contemplates a four-stage process: the Application, Evaluation, Testing, and Exit Stages. During the Application Stage, applicants are mandated to submit certain minimum documentary requirements, including an eligibility self-assessment checklist. During the Evaluation Stage, the BSP evaluates the completeness of the documentary requirements based on certain eligibility standards. The Testing Stage is divided into two phases – testing design phase and testing implementation. These determine the proposed solution’s viability. Finally, during the Exit Stage, the participant will prepare a final report, providing a comprehensive evaluation of the entire sandbox activity.
Participants whose sandbox activities are assessed as successful and whose products or services are deemed fit for public consumption after having completed the Testing and Exit Stages may submit to the BSP an application for authority to operate and offer the proposed product or service to the public.33
Consumer Protection
Under the Framework, participants must adopt measures to protect consumer rights and interests. They must inform customers that the product or service offered is under the Framework and the possible risks associated with such product or service.34 The participants should also inform customers of the related complaints handling and dispute resolution procedures, ensuring that adequate, prompt, and effective mechanisms or procedures for handling and resolving disputes covering regulatory sandbox issues are in place.35
All regulatory sandbox experimentation must follow the rules and regulations on data sharing, data privacy, and data protection in all phases. The right to control the use of customer data are limited to the boundaries of the consent provided by the customer in availing the product or service.
CONCLUSION
The shift to the PPSA is expected to contribute to financial inclusion by allowing more people and businesses to use their assets to access formal lending channels. This is particularly important in the Philippines, where a significant portion of the population has been traditionally underserved by the banking sector.
The BSP has noted that technology is one of the major drivers of financial inclusion and that financial service providers has been utilising technology by investing in platforms or systems that can create products and services particularly in payments and credit or loans that are suitable to the Filipinos, especially those who are underserved or unserved.
Thus, with the issuance of the Regulatory Sandbox Framework, it is expected that more and new entrants will move swiftly and offer products tailored to the needs of underbanked businesses and consumers. The issuance of the FPSCPA will ensure that financial consumers will remain protected notwithstanding the surge of new financial products and services, including those driven by technology.
