SEC cautions against transacting with non-PH registered businesses: Here’s why

SEC cautions against transacting with non-PH registered businesses: Here’s why

Legal & Compliance

CloudCfo Inc

CloudCfo Inc

136 week ago — 9 min read

It is a key tenet of the Philippine compliance and regulatory framework that a corporate entity conducting business or intending to conduct business in the Philippines is obliged to register and obtain a primary registration with the SEC.

 

In relation to this, SEC has recently released an advisory against transacting with businesses or companies that do not have a registered presence in the Philippines. And while the SEC advisory is primarily aimed for the general public, businesses and corporations should also take note.

 

Why?

As more and more companies in the Philippines transition to using a range of online tools and solutions to manage their business and finances (e.g. payment gateways, foreign exchange platforms, cloud accounting systems, etc.), consumers are more likely to encounter online platforms and offerings from companies that may or may not have a registered or licensed presence in the Philippines.

 

So, for businesses and corporations in the Philippines, it’s time to consider the identity and status of the businesses and tools that you are transacting or dealing with, where your finances (and data) are being held, and what protection you might have in connection with such transactions.

 

Below, we summarize SEC’s recent advisory and outline the key areas that businesses and corporations in the Philippines should be considering.

 

SEC Advisory: Transacting with non-PH registered foreign companies

On 12 September 2021, the SEC released a new advisory entitled: “SEC Advisory against dealing with Non-Registered Foreign Entities, Organizations and Corporations“.

 

The key point or objective of this advisory should be quite clear from the title.

 

SEC is advising the public in the Philippines to take caution when engaging or transacting with corporations or entities that are not licensed or registered, or who may be suspected not to be licensed or registered, in the Philippines.

 

SEC is urging people to undertake appropriate due diligence before dealing with or entering a transaction with any form of business or commercial entity. This is particularly important when the transaction might have financial implications for a particular party.

 

In addition, SEC is also encouraging the public to avoid entering into transactions with companies, corporations or any form of commercial entity if it is not registered in the Philippines or does not have a license to operate.

 

A key reason for the SEC’s advice is to help parties avoid entering transactions with non-PH registered foreign companies and risk potential financial loss.

 

What’s the background to this new SEC advisory?

According to SEC itself, it has received a significant number of queries relating to the consequences or implications of engaging with non-registered foreign corporations and entities that sell products or services online within the Philippines.

 

This largely includes mobile applications, digital platforms or online businesses that can quite easily offer their products or services in the Philippines even without a physical presence in the country. As technology advances, more and more businesses, platforms, and services may be offered from remote locations.

 

SEC even notes that there are unregistered corporations and entities enabling individuals (and also companies) within the Philippines to access their companies’ online platforms and permit the signing up, creation and/or registration of client accounts online even if the platform operators have no registration or license to do business in the Philippines.

 

Also, SEC makes mention that in certain cases, individuals in the Philippines are being targeted by online or digital advertising across social media networking sites urging people to sign up and create user accounts with these companies.

 

What are the key businesses or business models to watch out for?

According to SEC, it is primarily companies or business models that enable the establishment of their services in the Philippines through online or digital means—via a mobile app or other form of digital platform.

 

Many types of services or tools being offered by these businesses have been specifically identified by SEC and the following are just some examples:

 

  • Foreign Currency Exchanges
  • Cryptocurrency/Virtual Asset Exchanges
  • Asset or Securities Brokerage Companies
  • Platforms for Securities Token Offerings
  • Illegal Investment Scheme websites
  • “Play-to-Earn Gaming” platforms
  • Gambling websites

 

For the full list of examples of relevant businesses identified by SEC, check out the SEC Advisory.

 

Consequences of dealing with a non-Philippine registered business

SEC has outlined two important potential consequences when entering into a transaction with a business that does not have a registered presence here in the Philippines, as stated below:

 

  1. If an issue arises during an engagement or transaction between a) an individual Filipino or a Philippine business and b) a business with no registered presence in the Philippines, that individual Filipino or Philippine company will have little to no protection or recourse under Philippine law. Such recourse or protection would usually revolve around fraud, misconduct, or breach of contract.
  2. Attempting to seek recourse against a company with no registered presence in the Philippines can be extremely difficult. The Philippines is unlikely to have any jurisdiction to assist an individual against a non-PH registered business as the appropriate recourse would be under the laws of the jurisdiction or country where the company is registered.

 

What precautions can PH individuals and companies take to ensure they are dealing with registered businesses?

There are number of ways in which an individual or a company in the Philippines may verify the status of another company’s registration or license to operate. We have outlined just a few of these exploratory or due diligence channels below:

 

  1. A copy of a company’s SEC Certificate may be requested. The SEC Certificate of Incorporation is effectively the “birth cert” of the company from the perspective of SEC. It is not uncommon for companies, particularly financing and lending companies, to actually include their Certificate of Incorporation on their website. If it’s not on the website, contact the company directly to make this request.
  2. There are also quite specific registration and compliance obligations for Financing and Lending Companies in the Philippines. Such companies are required to obtain “secondary licenses” which would permit them to carry on the business of lending or financing here in the Philippines. Again, for legitimacy and credibility perspective, many Financing and Lending Companies will include a copy of their secondary license on their website, application, portal or platform. Again, check the website or contact the company directly to request evidence of their registration status in the Philippines.
  3. The BIR2303 or Certificate of Registration of a company may also be requested. The BIR2303, often referred to as the COR, is the second “birth cert” of the company; although this document is issued by the tax authorities in the Philippines–which is BIR–and signifies the triggering of a company’s tax obligations in the Philippines.
  4. Finally, SEC has also created a forum where individuals and corporations may send queries and concerns about companies or SEC-related registrations by email to the PhiliFintech Innovation Office at fintech@sec.gov.ph.

 

Also read: Four key trends for small and medium business that will bring your company success in 2022

 

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Image source: Canva

 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.

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