SEC Cautions Against Transacting with Non-PH Registered Businesses: Here’s Why!

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

The SEC has recently released an Advisory against transacting with businesses or companies that do not have a registered presence in the Philippines.

While the SEC Advisory is primarily aimed at the general public, businesses and corporations in the Philippines should also take notice!

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), they are more and 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 corporates 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 protections you might have in connection with any such transactions!

Below, we summarise the SEC’s recent Advisory and outline the key areas that businesses and corporations in the Philippines should be considering on an ongoing basis!

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!

The 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.

The SEC is urging people to ensure to undertake appropriate due diligence before dealing with or entering into 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!

The SEC is also urging the public to avoid entering into transactions with companies, corporates or any form of commercial entity if the entity is not registered in the Philippines or does not have a licence to operate in the Philippines.

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

What’s the Background to this New SEC Advisory?

According to the SEC itself, the SEC 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 would largely include mobile applications, digital platforms or online businesses that can quite easily offer their services (or platform) in the Philippines but may not necessarily require a physical presence in the country. As technology advances, more and more businesses, platforms and services can be offered from remote locations.

The SEC notes that there are unregistered corporations and entities enabling individuals (and also companies) within the Philippines to access the 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.

The SEC also notes 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 the 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 specific type of services or tools being offered by these businesses have been specifically identified by the SEC and include just some of the following 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 the SEC, check out the SEC Advisory.

Consequences of Dealing with a Non-Philippine Registered Business

The 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 outlined below:

1. If an issue arises during an engagement or transaction between a) a 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 someone against a non-PH registered business as the appropriate recourse would be under the laws of the jurisdiction or country in which the company is registered.

What Precautions Can PH Individuals and Companies Take To Ensure They Are Dealing With Registered Businesses?

There are a number of ways in which an individual or a company in the Philippines can verify the status of a company as it relates to their registered status or licence to operate in the Philippines.

We have outlined just a few of these exploratory or due diligence channels below:

1. A copy of a company’s SEC Certificate can be requested. The SEC Certificate of Incorporation is effectively the “birth cert” of the company from the perspective of the 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 Licences” which would permit them to carry on the business of lending or financing here in the Philippines. Again, from a legitimacy and credibility perspective, many Financing and Lending Companies will include a copy of their Secondary Licence 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 can 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 – the BIR – and signifies the triggering of a company’s tax obligations in the Philippines.
4. Finally, the SEC has also created a forum where individuals and corporations can send queries and concerns that they might have about companies or SEC-related registrations by email to the PhiliFintech Innovation Office at fintech@sec.gov.ph.

CloudCfo – Compliance and Regulation Consulting for Startups and SMEs in the Philippines

At CloudCfo, we have a wide range of experience working with domestic Philippine corporations that transact with both foreign and domestic businesses as part of their daily business and financial operations.

We understand the pain points that can arise and we know the Philippine tax and compliance obligations that must be considered for every transaction or business activity that occurs!

Our comprehensive tax services help protect your PH business when dealing with other businesses (domestic and foreign) and ensure 100% compliance along the way! Contact the CloudCfo Team today!