On 28 November 2022, the Bangko Sentral ng Pilipinas (the Philippine Central Bank or “BSP”) issued Circular No. 1160, series of 2022 (link here) and adopted the Amended Regulations and Guidelines on Financial Consumer Protection (“FCP”) Framework to implement Republic Act No. 11765 (the Financial Products and Services Consumer Protection Act or “FPSCPA” – link to Official Gazette version is here). The approval of the FP Guidelines carries with it the amendment of the relevant provisions of the Manual of Regulations for Banks (MORB) and Manual of Regulations for Non-Bank Financial Institutions (MORNBFI). Some of the more relevant points of the FPSCPA and FCP Framework are discussed below.
1. What is the objective of the FPSCPA?
The FPSCPA was enacted in May 2022 with the objective of helping establish appropriate mechanisms to protect the interest of consumers of financial products and services under the conditions of transparency, fair and sound market conduct, and fair, reasonable, and effective handling of financial consumer disputes, which are aligned with global best practices. The FPSCPA took effect on June 3, 2022.
The FCP Framework was adopted by the BSP pursuant to the directive in Section 18 of the FPSCPA that all “financial regulators” issue regulations to implement the law within one year from the law’s effectiveness. As contemplated by the FPSCPA, the following agencies are “financial regulators”: the BSP, the Securities and Exchange Commission (“SEC”), the Insurance Commission (“IC”) and, generally with respect only to cooperatives that offer financial products or services, the Cooperative Development Authority.
The FCP Framework establishes the guidelines and expectations from BSP-Supervised Institutions (or “BSIs”; defined in item 3 below) to institutionalize consumer protection as an integral component of corporate governance and culture as well as risk management. The objectives of the FCP Framework are for BSIs to manage risks and potential harms to financial consumers, prevent unfair business practices, achieve fair and beneficial consumer outcomes and empower financial consumers to make better and informed financial decisions.
2. What is the scope and coverage of the FPSCPA and the FCP Framework?
The FPSCPA applies to all “financial products and services” that are offered or marketed by any “financial services provider.” Similarly, the FCP Framework applies to all “financial products and services” that are created, developed, offered or marketed by BSIs.
3. What are considered “financial products and services” under the FPSCPA? Which persons are considered “financial service providers”? Which are considered BSIs?
As defined by the law, the term “financial product or service” refers to financial products or services which are developed or marketed by a financial service provider. These products or services may include, but are not limited to, savings, deposits, credit, insurance, pre-need and health maintenance organization products, securities, investments, payments, remittances and other similar products and services. The term also includes digital financial products or services which pertain to the broad range of financial services accessed and delivered through digital channels.
In turn, persons (whether natural or juridical) that provide financial products or services that are under the jurisdiction of the financial regulators (as enumerated in the second paragraph of item 1 above) are considered “financial service providers.” Notably, an “investment adviser” (or any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of investment products or the advisability of investing in, purchasing, or selling investment products, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning investment products) is also considered a “financial service provider” – however, certain persons whose performance of the services mentioned above is solely incidental to the practice of their profession or business are expressly excluded from the definition of “investment advisers.” These include (but are not limited to) trust departments of banks; investment bankers; and lawyers, accountants, engineers, teachers or insurance agents.
For its part, the FCP Framework defines BSP-Supervised Institutions (or “BSIs”) as any person (whether natural or juridical) that provides financial products or services under the jurisdiction of the BSP, as provided in existing laws and regulations. This would include banks, for example.
4. Which persons are considered “financial consumers” who are entitled to protection under the FPSCPA and FCP Framework?
Any person or entity (or their duly appointed representatives) who is a purchaser, lessee, recipient (or a prospective purchaser, lessees or recipient) of financial products or services (as defined above) are considered “financial consumers” under the FPSCPA and FCP Framework.
Additionally, any person (whether natural or juridical) who had or has current or prospective financial transactions with a financial services provider pertaining to financial products or services is considered a “financial consumer.”
5. What are the obligations of BSIs under the FCP Framework?
In general terms, BSIs are required to comply with the following:
- establish a Consumer Protection Risk Management System that ensures that FCP risks are identified, measured, monitored and mitigated;
- the board of directors and senior management of the BSI should exercise oversight and identify, measure, monitor and mitigate FCP risks;
- comply with the following Consumer Protection Standards of Conduct:
- Disclosure and Transparency – ensure that financial consumers have a reasonably comprehensive understanding of the financial products or services they are availing of;
- Protection of Client Information – comply with the requirements of the Philippine Data Privacy Act;
- Fair Treatment – e.g., not discriminate against clients on the basis of race, age, and similar factors; ensure that terms and conditions of client agreements are not significantly imbalanced (note that clauses that permit banks to unilaterally amend a contract without adequate notice or specifying the circumstances under which amendments are permitted, or which permit banks to unilaterally assign agreements to the detriment of financial consumers without their consent, are among the clauses deemed “unfair” under the FCP Framework);
- Effective Recourse – establish a FCP Assistance Mechanism that provides free assistance to financial consumers on their concerns about the BSI’s financial products and services.
- Protection of Consumer Assets against Fraud and Misuse – provide necessary assistance, including information relating to fraudulent or unauthorized transactions.
6. What are the penalties imposed for non-compliance with the FPSCPA?
Persons violating the FPSCPA and its implementing regulations may be punished by imprisonment for a minimum of one year to a maximum of five years, or by fine ranging from PhP50,000 to PhP2,000,000, or both, at the discretion of the court. If the violation is committed by a corporation or a juridical entity, the directors, officers, employees, or other officers directly responsible for the violation will be liable.
However, in case of investment fraud, the SEC may impose a fine ranging from PhP50,000 to PhP10,000,000 for each instance of investment fraud plus a maximum of PhP10,000 for each day of continuing violation. In case profit is gained or loss is avoided as a result of the violation of the FPSCPA or investment fraud, a fine of not more than thrice the profit gained or loss avoided may be imposed by the financial regulators.
In addition, the BSP may also (among other available remedies): (a) restrict a BSI’s ability to collect excessive or unreasonable interest, fees or charges; (b) require a BSI to render an accounting of and disgorge any profits obtained or losses avoided in violation of the FCPA and implementing rules.
The relevant financial regulators may also impose administrative sanctions, and suspend or cancel the authority of the financial service provider to operate in relation to the financial product or service.
7. May financial consumers waive their rights under the FPSCPA?
The FCP Framework states that no provision of a contract for a financial product or service shall be lawful or enforceable if such provision operates as a waiver of or otherwise deprives a financial consumer of its right to sue the BSI, receive information, have its complaints addressed and resolved, or to have its data protected.
8. Apart from BSIs, are there other financial service providers that are governed by more specific rules or implementing regulations?
Although the IC and SEC have published drafts of their respective rules to implement the FPSCPA (which would apply to the financial service providers under their jurisdiction), those rules have not been officially approved and published yet. The Cooperative Development Authority has not yet issued its own rules to implement the FPSCPA.