THE Securities and Exchange Commission (SEC) has issued draft guidelines for the registration and operation of online lending platforms, an amendment of its previous regulation in line with efforts to stamp out abusive and predatory practices.

The SEC released for public comment the draft guidelines last November 19, following the imposition of a moratorium on the registration of new online lenders two weeks before.

The draft guidelines will apply to both existing and newly-registered financing and lending companies who have yet to own, operate or utilize a lending platform and other modes of financial technology (fintech), as well as those who are already engaged in fintech, that aims to provide their credit products and related services.

Under the proposed guidelines, no financing or lending company will be allowed to own, operate or use online-lending platform or engage in fintech without registration and prior approval by the SEC. The company’s ability to engage in fintech must also be included in its purpose as stated in its Articles of Incorporation.

Aside from being registered and licensed as financing or lending companies, applicants for an license must also have at least five directors and at least two independent directors, or such number that that will constitute 20 percent of the members of the board of directors, whichever is higher.

The SEC Corporate Governance and Finance Department will then evaluate the documents submitted by the applicant company. The financing or lending company will then present its business and operational plan as well as its marketing strategy, target market, interest rates, loan products, and services before a panel of representatives from the SEC.

The financing or lending company will also provide a walk-through of the simulating actual user experience, its complaint-handling process and a discussion on the extent of data to be collected by the platform and how these would be handled.

A SEC panel will then submit its recommendation to the SEC en banc, which will decide on whether to grant or deny the application. Rejected financing and lending companies may reapply after one year and should demonstrate that the reason for rejection no longer exists.

Under the draft guidelines, the license shall have an initial validity of one year from the issuance date, subject to periodical examination and renewal by the regulator.

Financing companies who fail to comply with the conditions of the license will be subject to penalties amounting to P100,000 for the first offense and P200,000 for the second offense. Lending companies will be subject to penalties of P50,000 and P100,000 for the first and second offense, respectively.

For the third offense, the SEC may impose a fine of not less than twice the basic penalty but not more than P1 million; suspension of the license for 60 days; or revocation of the license.

The regulator may also impose a daily penalty of P400 and P200 for financing and lending companies, respectively, on top of basic penalties.

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