SEC to beef up corporate governance

MANILA, Philippines — The Securities and Exchange Commission (SEC) has drafted rules on material related party transactions as part of its continuing efforts to impose stricter corporate governance on companies. 

In the draft rules, the SEC said the move is in the fulfilment of its mandate “to protect the corporate sector, the capital market participants, the securities and investment instruments market, and the investing public from transactions detrimental to and practices inconsistent with the development of businesses in the Philippines through the promotion of corporate governance and the protection of minority investors.”

The SEC has made public the draft of the so-called Material RPT Rules to seek comments from the different stakeholders. 

“The SEC recognizes that transactions between and among related parties may create financial, commercial and economic benefits to individual institutions and to the entire group where said institutions belong. In this regard, related party transactions (RPTs) are generally allowed provided that when RPTs amount to 10 percent or higher of a company’s total assets, it should be considered as material related party transactions subject to these rules,” the SEC said in the draft rules.

Compliance to the Material RPT Rules should be mandatory for all publicly-listed companies (PLCs), the SEC said.

The SEC defined related party transactions as the transfer of resources, services or obligations between a reporting listed company and a related party, regardless of whether a price is charged. 

It should be interpreted broadly to include not only transactions that are entered into with related parties, but also outstanding transactions that are entered into with an unrelated party that subsequently becomes a related party.

On the other hand, it defines a Material RPT as any related party transaction either individually or over a 12-month period, amounting to 10 percent or higher of a company’s total assets. 

“The board of directors shall adopt a group-wide material RPT policy encompassing all entities within the conglomerate, taking into account its size, structure, risk profile and complexity of operations,” the SEC said.

At a minimum, material RPT policies shall include the identification of related parties.             

“The policy shall clearly identify persons and companies that are considered as the company’s related parties.