SEC sets requirements for FIST entities

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    The Securities and Exchange Commission (SEC) said companies that will take advantage of the incentives under the Financial Institutions Strategic Transfer (FIST) Act  must have a minimum authorized capital of P500 million, of which P125 million has to be subscribed and P31.25 million paid-up.

    The FIST Act allows for the establishment of corporations that will  invest or acquire non-performing assets (NPAs) of covered financial institutions.

    A FIST company is required to have independent directors on its board of directors, and shall appoint a compliance officer, submit compensation and performance reports, and comply with other requirements prescribed by law, the securities market regulator also said, as it announced the finalization of the FIST Act’s implementing rules and regulation (IRR) that takes effect after it is published March 29, 2021.

    “Applications for the establishment and registration of a FIST entity shall be filed with the SEC within 36 months from the FIST Act’s effectivity. Those established on the 25th to 36th month cannot avail of the tax incentives unless an amendatory law extending the privileges is passed,” the SEC also said.

    Special purpose vehicles created under Republic Act No. 9182,  The Special Purpose Vehicle (SPV) Act of 2002, meanwhile may also avail of the privileges and incentives provided under the FIST Act by submitting a notarized secretary’s certificate, its recent articles of incorporation and bylaws, and its latest audited financial statements and general information sheet showing its compliance with the minimum capital requirements.

    “Existing SPVs applying for reconfirmation will likewise have to amend their corporate name to include the acronym “FISTC-AMC” and amend its articles of incorporation to conform with the FIST Act and its IRR,” it said.

    Under the FIST Act, the Bangko Sentral ng Pilipinas (BSP), banks, pawnshops, non-stock savings and loan associations (NSSLAs), and non-bank credit card issuers and other credit-granting institutions supervised by the central bank; financing companies, lending companies, and accredited microfinance nongovernment organizations; investment houses; insurance companies; and select government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs) like the Philippine Deposit Insurance Corp., Land Bank of the Philippines, Development Bank of the Philippines (DBP), National Home Mortgage Finance Corp., Philippine Guarantee Corp., Home Development Mutual Fund, Social Security System, Government Service Insurance System, Small Business Corp., and National Housing Authority may transfer non-performing assets to FIST entities.

    The assets should have become non-performing on or before December 31, 2022, the IRR requires.

    “They may be non-performing loans (NPLs), including receivables and restructured loans whose principal and/or interest have remained unpaid for at least 90 days after they have become past due or after any events of default under the loan agreement,” the SEC said.

    The SEC at the same times said that financial institutions may also transfer to FIST entities real and other properties acquired (ROPA) in settlement of loans and receivables, including shares of stocks and personal properties acquired by way of dation in payment, or judicial or extra-judicial foreclosure or execution of judgment or enforcement of security interest.

    “A financial institution that intends to transfer NPAs to a FIST entity shall apply for eligibility of said assets, in the prescribed format, with the appropriate regulatory authority for each transfer,” the SEC said.

    “The certificate of eligibility (COE) shall be issued by the DOF, in the case of GOCCs and GFIs other than Landbank and DBP, and by the Monetary Board or its designated authority in the case of the BSP,” it added.

    The BSP shall issue the COE in the case of banks and other credit-granting institutions under its supervision; the Insurance Commission in the case of insurance companies; and the SEC in the case of financing and lending companies, accredited microfinance NGOs, and investment houses, except their trust and quasi-banking functions, or any qualified entity not under the DOF or BSP.

    The appropriate regulatory authorities shall coordinate with the LRA for the production of barcodes or any other electronic markings for the COE. They shall furnish the SEC and the BIR a duplicate copy of the COE within five working days from issuance.

    “While the transfer of an NPA from financial institutions to a FIST entity without a COE is allowed, the transaction will not be granted fiscal incentives under FIST,” the SEC said.

    All sales or transfers of NPAs to a FISTC shall be in the nature of a true sale, the IRR also requires.

    “The transferor transfers full legal and beneficial title to and relinquishes effective control over the transferred NPAs, and that the NPAs are legally isolated and put beyond the reach of the transferor and its creditors,” it reads.

    In the transfer of NPAs, FIST entities cannot use the NPAs it acquired from financial institutions as collateral for the payment for the sale/transfer of the same. Profit-sharing agreements executed between selling financial institutions and FIST entities shall be submitted for review to the appropriate regulatory authority with a duplicate copy to be submitted to the SEC as well

    Meanwhile, a FISTC may issue investment unit instruments (IUIs) to any qualified buyer provided they can invest a minimum of P10 million, pursuant to a FIST entity’s plan submitted to the SEC and issued with a certificate of permit to sell or offer for sale securities.

    “Only a FIST entity that intends to issue IUIs is required to submit a FIST entity plan per the IRR. The plan shall include the investment policies of the FIST entity, features of the IUIs, including specific amounts issued and to be issued, rights of the IUI holders, and methods for the liquidation and distribution of assets to the IUI holders, among others,” the SEC said.

    The IRR however prohibits a FIST entities from acquiring the IUIs of another FIST entity.

    “The selling financial institution and its parent, subsidiaries, affiliates or stockholders, directors, officers, or any related interest shall likewise not acquire or hold, directly or indirectly, the IUIs of the FISTC that acquired its NPAs,” it said.

    “Any FISTC or SPV that offers to sell or distribute its IUIs to non-permitted investors within the Philippines without prior approval of the SEC shall be subject to the penalties provided under Republic Act No. 8799, or the Securities Regulation Code, and its IRR,” the SEC said.

    The SEC said that a FIST entity shall set up “an appropriate financial consumer protection mechanism, which shall include standards of conduct on disclosure and transparency, conflicts of interest, protection of client information, fair treatment in terms of affordability and suitability of product or service, prevention of over-indebtedness, cooling-off period, and objectivity, effective recourse and exhaustion of all remedies, among others.”

    Under the IRR, the transfer and other related transactions involving eligible NPLs and ROPAs shall be exempt from the payment of certain taxes such as the documentary stamp tax, capital gains tax, creditable withholding income taxes, and value-added tax, subject to the applicable revenue regulations.

    Transactions shall also be entitled to the payment of reduced fees, including 50 percent of the applicable mortgage registration and transfer fees on the transfer of real estate mortgage and chattel mortgage registrations to and from the SPV/individual; 50 percent of the filing fees for any foreclosure initiated by the SPV/ individual in relation to any NPA acquired from a financial institution; and 50 percent of the land registration fees.

    To encourage the infusion of capital and financial assistance by the FIST entities for the rehabilitation of the borrower’s business, the IRR also exempts FIST entities from the income tax on net interest income arising from new loans in excess of existing loans, among others.

    Any loss incurred by a financial institution as a result of transferring its NPA to a FIST entity within a period of not more than two years from the date of effectivity of the FIST Act shall be treated as an ordinary loss and may be carried over as a deduction from its taxable gross income for a period of five consecutive taxable years immediately following the year of the transfer that resulted to such loss.

    “Any person, natural or juridical, who abuses the tax exemptions and fee privileges shall refund the government double the amount of the tax exemptions and privileges availed of plus 12 percent interest per year from the prescribed date of payment, in addition to the penalties and administrative sanctions provided by law,” the SEC said.