SEC Adopts ASEAN SRFs, Establishes Implementing Rules


The Securities and Exchange Commission (“SEC”) issued Memorandum Circular No. 4, Series of 2023 (“Circular”) adopting the ASEAN Sustainable and Responsible Fund Standards (“ASEAN SRFS“) and establishing rules to implement it in the Philippines. It took effect on 27 April 2023.

The ASEAN SRFS applies to investment companies, including sub-funds of umbrella funds, that seek to offer their shares, either locally or on a cross-border basis, as an ASEAN Sustainable and Responsible Fund (“ASEAN SRF”). It was developed by the ASEAN Capital Market Forum, in line with the growing importance of sustainable finance in the ASEAN, to provide minimum disclosure and reporting requirements for Collective Investment Schemes (“CIS”) that seek to qualify under the ASEAN SRFS and to address the need for a comparable, uniform, and transparent disclosure of information to mitigate the risk of, among others, greenwashing.

The Circular also applies to (i) local investment companies and their fund managers seeking to qualify under the ASEAN SRFS and want to either offer locally or on a cross-border basis under the ASEAN CIS Framework and (ii) foreign CIS operators already qualified as an ASEAN SRF in their home jurisdiction seeking to offer in the Philippines under the ASEAN CIS Framework. The ASEAN CIS Framework is the streamlined authorization process for the cross-border offer of CIS, such as unit trust funds or mutual funds.

Minimum disclosure and reporting requirements for ASEAN SRFs

The ASEAN SRF must disclose, among other things, its sustainable investment objectives and strategies. Examples of these sustainable investment strategies include, but are not limited to active ownership, ESG integration, and ethical and faith-based investing. It must also disclose its sustainability risk considerations and how it manages these risks. Other items to be disclosed include the ASEAN SRF’s stewardship policies and processes in case of breach of the minimum asset allocation threshold or inconsistency with sustainable investment objectives.

As to the reporting requirements, the ASEAN SRF must provide annual and interim reports on how it has attained its sustainable investment objectives, which are to be made publicly available online on its website.

Qualification of local investment companies as an ASEAN SRF

The local investment company must be incorporated under Philippine laws and authorized to publicly issue shares under the Investment Company Act, Securities Regulations Code, and their respective Implementing Rules and Regulations. It must also comply with the ASEAN SRFS and with local rules on Sustainable and Responsible Investment Funds (“SRIF”), i.e., SEC Memorandum Circular No. 11, Series of 2022 and its amendments.

If the local investment company also seeks to offer on a cross-border basis under the ASEAN CIS Framework, it must comply with local laws implementing the Framework, specifically SEC Memorandum Circular No. 9, Series of 2021 or the Rules on Authorisation of an Investment Company as a Qualifying CIS and Recognition of a Foreign CIS Under the ASEAN CIS (“ASEAN CIS Circular”), and the other concerned jurisdiction’s laws and rules on ESG Funds.

Recognition of foreign ASEAN SRFs in the Philippines

Qualified foreign CIS operators under the ASEAN SRFS, or “foreign SRFs,” seeking to offer in the Philippines must comply with the ASEAN CIS Circular and submit the Standard Letter issued in its home jurisdiction as proof that it has qualified as an ASEAN SRF.

The foreign SRF’s name must accurately and fairly reflect the sustainability or ESG factors set out in its investment objective or strategy. The foreign SRF seeking recognition must submit an explanation as to how its proposed name is proportionate to its ESG features as a whole and will neither mislead investors as to the role of ESG in its overall investment objective and strategy nor over-emphasize or overstate the foreign SRF’s ESG features. This also applies for the foreign SRF’s marketing materials and website disclosures.

The foreign SRF must disclose the following information in its prospectus: its qualification as an ASEAN SRF, asset allocation, sustainable investment strategy and related risks, policies on inconsistency with the sustainable investment objective, and other information considered necessary by the foreign SRF, such as the use of a third-party certification or fund label.

A foreign SRF must submit annual and interim reports to the SEC with assessments on how it has attained its sustainable investment objectives. It must also report any breach of the ESG investment threshold or inconsistency with sustainable investment objectives.

In addition to the requirements of the Circular, all qualified ASEAN SRFs will be listed in the ASEAN Capital Market Forum’s microsite dedicated for the ASEAN SRFs. ASEAN SRFs that no longer qualify under the requirements of the ASEAN SRFS and any amendments thereto will be removed from the list.

Administrative sanctions of the SEC

An investment company’s qualification as an ASEAN SRF may be suspended or revoked if it fails to comply with local SRIF rules and/or the ASEAN SRFS. Failure to comply with the Circular will subject the company and/or its fund manager to penalties prescribed by the SEC. A foreign SRF’s recognition in the Philippines may be suspended or revoked if it fails to comply with the Circular, such as the reportorial requirements on breach and inconsistency, or if it loses its status as an ASEAN SRF in its home jurisdiction or its authority to offer under the ASEAN CIS Circular.

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