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Non-Bank Financial Regulatory Authority - Supervision And Regulation Of Non-Bank Financial Institutions (S 49)

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[Ch4608s49]49.     Prudentially regulated non-bank financial institutions

            (1) The non-bank financial institutions referred to in subsection (2) are declared to be prudentially regulated non-bank financial institutions, and accordingly the provisions of section 50 and prudential rules made thereunder shall have effect in relation to such prudentially regulated financial institutions.

            (2) The following are prudentially regulated non-bank financial institutions-

     (a)     an asset manager;

     (b)     a person operating a central securities depository;

     (c)     a collective investment undertaking that is an investment company with variable capital;

     (d)     a person operating a collective investment undertaking other than one described in paragraph (c);

     (e)     a custodian;

     (f)      an insurer;

     (g)     a pension or provident fund;

     (h)     a securities dealer;

     (i)      the operator of a securities exchange;

     (j)      a trustee of a collective investment undertaking or a pension or provident fund;

     (k)     pension fund administrator;

     (l)      finance and leasing company;

     (m)    insurance agent;

     (n)     insurance broker;

     (o)     international insurance firm;

     (p)     investment adviser;

     (q)     management company for a collective investment undertaking;

     (r)      micro lender.

            (3) Without prejudice to the preceding provisions of this section, regulations may declare other non-bank financial institutions to be prudentially regulated non-bank financial institutions, and the provisions of section 50 and prudential rules made thereunder shall have effect in relation to such institutions.

Prudential Rules (s 50)

[Ch4608s50]50.     Prudential rules

            (1) The Regulatory Authority may make and publish rules imposing requirements with respect to-

     (a)     the conduct of the affairs of prudentially regulated non-bank financial institutions, or of the affairs of financial groups, with a view to ensuring that the prudentially regulated financial institutions or the groups (as the case requires) maintain a sound financial position and do not cause or promote instability in the financial system; or

     (b)     the conduct of the affairs of prudentially regulated non-bank financial institutions with integrity, prudence and professional skill.

            (2) Without limiting what a prudential rule may deal with, a prudential rule may impose requirements with respect to any of the following-

     (a)     fit and proper person requirements for controllers and managers of prudentially regulated non-bank financial institutions;

     (b)     the governance of non-bank prudentially regulated financial institutions;

     (c)     capital and liquidity requirements;

     (d)     valuation requirements and methods;

     (e)     standards of business conduct;

     (f)      requirements for controllers of non-bank financial institutions;

     (g)     the use by non-bank financial institutions of financial instruments (including derivatives) and off balance sheet transactions;

     (h)     insurance and, in the case of insurers, re-insurance arrangements;

     (i)      outsourcing;

     (j)      how prudentially regulated non-bank financial institutions manage risks associated with their businesses.

            (3) The Regulatory Authority shall not make a prudential rule unless-

     (a)     either-

           (i)       a draft of the rule has been published in a way that the Regulatory Authority considers will bring it to the attention of prudentially regulated non-bank financial institutions to which it will apply;

          (ii)       those institutions have had at least 90 days after that publication to make representations about the matter to the Regulatory Authority; and

          (iii)       the Regulatory Authority had regard to those representations in deciding whether to make the rule; or

     (b)     the Regulatory Authority considers on reasonable grounds that it is necessary to make the rule urgently.

            (4) A prudential rule made in terms of paragraph (b) of subsection (3) ceases to have effect at the end of 90 days after it is made, but this subsection does not prevent the Regulatory Authority from acting in terms of that paragraph again.

            (5) Subsections (3) and (4) apply in respect of modifications of prudential rules.

Information, reports, etc. (ss 51-52)

[Ch4608s51]51.     Information to be given to Regulatory Authority

            The Regulatory Authority may at any time give a written direction to a licensed non-bank financial institution requiring it to give information to the Regulatory Authority relevant to the performance of the Regulatory Authority's functions under a financial services law.

[Ch4608s52]52.     Reporting

            (1) The Minister may make regulations that impose requirements on any of the following-

     (a)     a non-bank financial institution;

     (b)     an affiliate of a non-bank financial institution;

     (c)     a person who is or has at any time been a director or manager of a non-bank financial institution;

     (d)     a person who is or has at any time been an auditor of a non-bank financial institution;

     (e)     in the case of a pension or provident fund or an insurer, an actuary or auditor for the fund or the insurer;

     (f)      a controller of a non-bank financial institution;

to make reports to the Regulatory Authority, and to give information or documents to the Regulatory Authority, in connection with the Regulatory Authority's performing its functions under a financial services law.

            (2) Without limiting subsection (1), the regulations may do any of the following-

     (a)     require the lodgement of periodic and other returns;

     (b)     require changes in management and control of non-bank financial institutions to be reported to the Regulatory Authority;

     (c)     require financial difficulties or suspected financial difficulties in non-bank financial institutions to be reported to the Regulatory Authority;

     (d)     require contraventions or suspected contraventions of financial service laws in relation to non-bank financial institutions to be reported to the Regulatory Authority.

            (3) A person who refuses or fails to comply with regulations made for the purposes of this section shall be liable to a civil penalty not exceeding P50,000 to be imposed by the Regulatory Authority.

            (4) A person who reports to the Regulatory Authority-

     (a)     financial difficulties or suspected financial difficulties in a non-bank financial institution;

     (b)     a breach or suspected breach of a financial services law in relation to a non-bank financial institution;

     (c)     the involvement or suspected involvement of a non-bank financial institution in financial crime,

whether or not the report is required by law, shall not be liable for damages or other sanction in relation to a loss caused by the report unless it is established that the report was made in bad faith.

            (5) A person who subjects another person (in this subsection called a "reporter") to any prejudice in his or her employment, or penalises a reporter in any way, on the ground that the reporter made a report of a kind mentioned in subsection (4), even if the report was not required by law, commits an offence and on conviction is liable to a fine not exceeding P10,000.

Directions (s 53)

[Ch4608s53]53.     Powers to give directions

            (1) If it appears to the Regulatory Authority that-

     (a)     a non-bank financial institution has contravened a financial services law;

     (b)     a non-bank financial institution is likely to contravene a financial services law;

     (c)     a non-bank financial institution is conducting its affairs in an improper or in a financially unsound way;

     (d)     a non-bank financial institution is causing or promoting instability in the financial system, or is likely to do so;

     (e)     a non-bank financial institution is involved in financial crime; or

     (f)      the direction is necessary to protect the interests of clients of a non-bank financial institution,

the Regulatory Authority may give the non-bank financial institution a written direction as to the way in which the affairs of the institution are to be conducted.

            (2) Without limiting subsection (1), a direction may require a non-bank financial institution to do any of the following-

     (a)     to comply with the whole or a specified part of a financial services law;

     (b)     to cause a person (such as an auditor) chosen by the Regulatory Authority to audit the records of the institution, at the expense of the institution, and give the report to the Regulatory Authority;

     (c)     to ensure that a specified director or employee of the institution does not take part in the management or conduct of the business of the institution except as permitted by the Regulatory Authority;

     (d)     to appoint a specified person or persons to a specified office (including the office of director) of the institution for a period specified in the direction;

     (e)     to remove an auditor or actuary of the institution from office;

     (f)      not to borrow a specified amount, or any amount;

     (g)     not to pay a dividend;

     (h)     not to pay or transfer an amount to a person, or create an obligation (contingent or otherwise) to do so;

     (i)      not to undertake a financial obligation (contingent or otherwise) on behalf of another person;

     (j)      to take any other action the Regulatory Authority considers necessary or desirable to deal with the case in the interests of the institution, the clients of the financial institution or the financial system.

            (3) A direction may include a direction to remove a director or officer of the non-bank financial institution from office but only if the Regulatory Authority is satisfied that-

     (a)     either-

           (i)       the institution has contravened a financial services law or been involved in financial crime; and

          (ii)       the director or officer was knowingly concerned in the contravention of the financial crime; or

     (b)     the director or officer has contravened a financial services law or has been knowingly concerned in financial crime (whether or not related to the institution).

            (4) A direction in terms of subsection (2) not to pay or transfer an amount does not apply to the payment or transfer of money under an order of a court or a process of execution.

            (5) A direction may specify the time by which, or period during which, it is to be complied with.

            (6) A non-bank financial institution that has been given a direction in terms of this section has power to comply with it despite anything in its memorandum or articles of association or regulations, and despite any contract or arrangement to which it is a party.

            (7) A direction in terms of this section is not a ground on which a person may terminate, repudiate or cancel a contract with the non-bank financial institution, accelerate a debt under such a contract or close out a transaction with the institution, despite any provision to the contrary in any document.

            (8) The High Court may, on application by a party to a contract mentioned in subsection (7) (other than the non-bank financial institution), make an order relating to the effect of the direction on the contract.

            (9) Without limiting what the order may do, the order may require the non-bank financial institution-

     (a)     to perform its obligations under the contract; or

     (b)     to compensate the applicant, as specified in the order; but may not require a person to take action that would contravene the direction.

            (10) The Regulatory Authority may revoke a direction at any time, by written notice to the non-bank financial institution concerned.

Inspections and investigations (ss 54-57)

[Ch4608s54]54.     Appointment of inspectors and investigators

            (1) The Regulatory Authority may, by instrument in writing, appoint a person to be an inspector or an investigator.

            (2) The Regulatory Authority shall provide to each inspector and investigator an identity card approved by the Regulatory Authority.

            (3) An inspector or investigator, when exercising a power conferred by this Act, shall, on reasonable demand, produce his or her identity card for inspection, but failure to do so does not make the exercise of the power invalid.

[Ch4608s55]55.     Routine inspections of licensed non-bank financial institutions

            (1) An inspector may at any time inspect the affairs or any part of the affairs of a person who is, or at any time has been, a licensed non-bank financial institution to check whether the institution-

     (a)     is complying or has complied with the financial services laws and the conditions of its licence;

     (b)     satisfies criteria or standards set out in or made under a financial services law; or

     (c)     is or has been involved in financial crime.

            (2) For the purpose of such an inspection-

     (a)     the inspector may enter any premises used or apparently used by the licensed non-bank financial institution for business purposes, at any reasonable time; and

     (b)     inspect and make copies, or take extracts from, any relevant records, documents or things in those premises.

            (3) A licensed non-bank financial institution, and its directors, officers and employees, shall afford an inspector full and free access to the premises, records and documents of the institution as are relevant to the inspection.

            (4) A person who, without reasonable excuse, contravenes subsection (3) shall be liable to a civil penalty not exceeding P2,500 for each day on which the contravention occurs or continues to occur to be imposed by the Regulatory Authority.

[Ch4608s56]56.     Investigations

            (1) This section applies if an investigator-

     (a)     has reasonable grounds to believe that-

           (i)       an offence under a financial services law has been or may have been committed; or

          (ii)       a licensed non-bank financial institution is not complying with, or has not complied with, a financial services law; and

     (b)     suspects on reasonable grounds that a person (the "relevant person") has in its possession or under its control anything that may afford evidence relevant to the matter (the "relevant evidence").

            (2) For the purpose of investigating the offence or suspected offence, the investigator may do any of the following-

     (a)     subject to subsection (6), enter any premises used or apparently used by the licensed non-bank financial institution for business purposes, at any reasonable time and search for any record, document or other thing that the investigator considers may be relevant to the inspection;

     (b)     inspect and make copies, or take extracts from, and where necessary in an appropriate case to take possession of, such records, documents or things;

     (c)     give a direction (orally or in writing) to the licensed non-bank financial institution, to a director or employee of the institution, or to the relevant person, to produce the relevant evidence to the investigator as specified in the direction;

     (d)     give a direction (oral or written) to a relevant person to do any of the following-

           (i)       produce to the investigator, at a reasonable time and place specified in the direction, any relevant evidence;

          (ii)       give the investigator explanations or further information about the relevant evidence;

          (iii)       attend before the investigator at a reasonable time and place specified by the authorised person, and answer under oath questions relating to the matter.

            (3) A licensed non-bank financial institution, and its directors, officers and employees, shall afford an inspector full and free access to the premises, records and documents of the institution as are relevant to an investigation under this section.

            (4) A person who, without reasonable excuse, refuses or fails to comply with a direction in terms of subsection (2) shall be liable to a civil penalty not exceeding P2,500 for each day on which the refusal or failure to comply occurs or continues to occur to be imposed by the Regulatory Authority.

            (5) A person who , without reasonable excuse, says anything in answering a question put to the person by an investigator in terms of this section-

     (a)     that the person knows to be false or misleading in a material particular; or

     (b)     reckless as to whether it is false or misleading in a material particular, commits an offence and on conviction is liable to a fine not exceeding P50,000 or to imprisonment for a period not exceeding five years, or to both.

            (6) An investigator shall not enter premises in terms of subsection (2) (a) unless-

     (a)     with the consent of the person apparently in charge of the premises at the time of entry; or

     (b)     in accordance with a warrant under subsection (7); or

     (c)     in an emergency, under subsection (9).

            (7) A warrant for the purposes of this section is a warrant issued by a magistrate on application by an investigator.

            (8) A magistrate shall not issue a warrant under this section unless satisfied that this section applies to the case, as provided in subsection (1).

            (9) An investigator may enter premises and exercise powers under this section without the consent mentioned in subsection (6) (a) or a warrant only if there are reasonable grounds to suspect that it is necessary to do so to prevent loss or destruction of, or damage to, relevant evidence.

[Ch4608s57]57.     Investigators' powers

            An inspector or investigator acting in terms of section 55 or 56 has all the powers and protections of a Commissioner in terms of the Commissions of Inquiry Act. Cap. 05:02

Self-regulatory organizations (ss 58-64)

[Ch4608s58]58.     Self-regulatory organizations

            (1) The Minister may by order, on the recommendation of the Regulatory Authority, declare a person or body that has functions in relation to a class of non-bank financial institutions to be a self-regulatory organization for the purposes of this Act.

            (2) The Minister shall not make a declaration in terms of subsection (1) unless the Regulatory Authority has entered into arrangements with the person or body for the performance by the person or body of regulatory or supervisory functions in relation to the class of non-bank financial institutions.

            (3) The arrangements may, if the Regulatory Authority considers it appropriate, involve the delegation of the Regulatory Authority's powers under financial services laws to the self-regulatory organization.

            (4) The arrangements shall provide for-

     (a)     the supervision by the Regulatory Authority of the self-regulatory organization's performance of regulatory or supervisory functions by the self regulatory organization;

     (b)     the approval by the Regulatory Authority of any rules, and amendments of rules, of the self-regulatory organization for or with respect to the matters for which the self-regulatory organization has regulatory or supervisory functions, including such functions as delegate of the Regulatory Authority;

     (c)     the variation or termination of the arrangements where the Regulatory Authority is not satisfied that the self-regulatory organization is performing, or is able to perform, regulatory or supervisory functions to the satisfaction of the Regulatory Authority.

[Ch4608s59]59.     Rules of self-regulatory organizations

            (1) A self-regulatory organization may make rules, not inconsistent with the financial services laws, for or with respect to any matters for which the self-regulatory organization has regulatory or supervisory functions, including such functions as delegate of the Regulatory Authority.

            (2) Rules made in terms of subsection (1), and amendments of such rules, are of no effect unless approved by the Regulatory Authority.

[Ch4608s60]60.     Due process by self-regulatory organizations

            A self-regulatory organization shall not make a decision under its rules that adversely affects the rights of a person unless-

     (a)     the self-regulatory organization has given the person an opportunity to make representations to it about the matter; or

     (b)     the self-regulatory organization considers on reasonable grounds that delay in making the decision will prejudicially affect the protection of investors and consumers of securities services.

[Ch4608s61]61.     Reporting by self-regulatory organizations

            A self-regulatory organization shall notify the Regulatory Authority, as prescribed, as soon as practicable after a person is appointed a director or executive of the organization.

[Ch4608s62]62.     Termination of arrangements and revocation of declaration

            (1) The Regulatory Authority may recommend to the Minister the revocation of a declaration in terms of subsection 58 (1) at any time, but shall not do so unless the Regulatory Authority has notified the self-regulatory organization of its intention and the reasons for the Regulatory Authority's action, and given the organization at least 14 days to make representations to the Regulatory Authority about the matter.

            (2) The revocation of a declaration does not affect a right of a person to apply to the Tribunal in terms of section 85 for a review of a decision or action.

            (3) In a case mentioned in subsection (2), the Tribunal shall send a copy of the application to the Regulatory Authority, which is entitled to be a party to the review proceedings in the Tribunal.

[Ch4608s63]63.     Amendments to self-regulatory organizations' constitutions

            Notwithstanding anything in the Companies Act Cap. 42:01 an amendment to the memorandum or articles of association, or other constituent documents, of a self-regulatory organization is of no effect unless approved by the Regulatory Authority.

[Ch4608s64]64.     Protections for self-regulatory organizations, etc.

            None of the following-

     (a)     a self-regulatory organization;

     (b)     a director, executive or employee of a self-regulatory organization;

     (c)     a member of a committee of a self-regulatory organization;

shall be liable for any loss sustained by or damage caused to any person as a result of anything done or omitted by them in the performance in good faith of their powers, functions and duties in connection with the regulatory or supervisory functions the self-regulatory organization performs as self-regulatory organization, including those delegated to it by the Regulatory Authority.

Controllers of prudentially regulated non-bank financial institutions (s 65)

[Ch4608s65]65.     Controllers of prudentially regulated non-bank financial institutions

            (1) If a person takes a step intending thereby to become a controller of a prudentially regulated non-bank financial institution, then, unless the Regulatory Authority has approved the person's becoming a controller of the institution, the person shall be liable to a civil penalty not exceeding P10,000 to be imposed by the Regulatory Authority.

            (2) If-

     (a)     a person is a controller of a prudentially regulated non-bank financial institution by virtue of the degree of voting power a person has or controls in relation to the institution; and

     (b)     the person takes a step as a result of which the degree of voting power it controls varies by more than the percentage specified in the prudential rules; then, unless the Regulatory Authority has approved the variation, the person shall be liable to a civil penalty not exceeding P10,000 to be imposed by the Regulatory Authority.

            (3) If-

     (a)     a person becomes or ceases to be a controller of a prudentially regulated non-bank financial institution; and

     (b)     at the end of 14 days after the event, the change has not been reported to the Regulatory Authority in accordance with the regulations;

the person shall be liable to a civil penalty not exceeding P10,000 to be imposed by the Regulatory Authority.

            (4) If-

     (a)     a person is a controller of a prudentially regulated non-bank financial institution by virtue of the degree of voting power in relation to the non-bank financial institution that it has or controls;

     (b)     the degree of voting power in relation to the non-bank financial institution that it has or controls varies by more than the amount prescribed by the prudential rules; and

     (c)     at the end of 14 days after the event, the variation has not been reported to the Regulatory Authority in accordance with the regulations;

the person, and the prudentially regulated non-bank financial institution, each shall be liable to a civil penalty not exceeding P10,000 to be imposed by the Regulatory Authority.

            (5) A variation mentioned in subsection (2) or (4) may be either by way of increase or decrease in the percentage of voting power the person has or controls.

            (6) A prudentially regulated non-banking financial institution that permits a variation with respect to the position of a controller as mentioned in subsections (2), (3) or (4) without the approval of the Regulatory Authority shall be liable to a civil penalty not exceeding P50,000 to be imposed by the Regulatory Authority.