Financial Products and Services Consumer Protection Act Signed into Law

Republic Act No. 11765 or the Financial Products and Services Consumer Protection Act (“RA 11765”) was signed into law on 06 May 2022 in order to implement the State policy on the development of appropriate mechanisms to protect the interest of consumers of financial products and services. RA 11765 covers all financial products or services offered or marketed by any financial service provider.

Under the law, a financial service provider is defined as any person, natural or juridical, which provides financial products or services that are under the jurisdiction of the financial regulators. These regulators are the Bangko Sentral ng Pilipinas (“BSP”), the Securities and Exchange Commission (“SEC”), the Insurance Commission, and the Cooperative Development Authority with respect to cooperatives offering financial products or services except insurance cooperatives and cooperative banks and other BSP-supervised cooperative financial institutions. 

Meanwhile, financial product or service refers to financial products or services which are developed or marketed by a financial service provider which 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 definition also includes digital financial products or services which pertain to the broad range of financial services accessed and delivered through digital channels.

Under this law, the financial regulators shall have rulemaking powers, the power to conduct surveillance, examination, and monitoring of their respective supervised financial service providers. 

Aside from these, the financial regulators shall also have enforcement powers which will allow them to:

1. restrict the ability of the supervised financial service provider to continue to collect excessive or unreasonable interests, fees, or charges; 
2. disqualify and/or suspend directors, trustees, officers, or employees of the supervised financial service provider responsible for violations;
3. impose fines, suspension, or penalties for noncompliance with or breach of the Act, its implementing rules, or the orders of the financial regulators; 
4. issue cease and desist orders without necessity of prior hearing if the act or practice amounts to fraud or a violation of the provisions of this Act and its implementing rules;
5. suspend the operation of any supervised financial service provider; and 
6. impose a penalty for noncompliance with or breach of this Act and other existing laws.

Meanwhile, financial service providers are required to implement various mechanisms and standards for the convenience of its consumers. Among these are the following:

1. Cooling-off Period – a client will be allowed a period to consider the costs and risks of a financial product or service, free from the pressure of the sales team of the financial service provider. The length of the cooling-off period shall be determined on a case-by-case basis. Further, a cooling-off period may not be provided for short-term transactions or contracts.
2. Pre-payment of Loans and Other Credit Accommodations – a borrower may, at any time prior to the agreed maturity date, prepay a loan or other credit transactions in whole or in part.
   
3. Financial Customer Protection Assistance Mechanism – each financial service provider is to establish a customer assistance mechanism for free assistance to financial consumers on financial transactions concerns. Financial consumers who are unsatisfied with the financial service provider’s handling of their complaints may elevate their concerns to the financial regulator concerned.

The law also introduces the term “investment adviser” who shall be subject to pertinent provisions of the Republic Act No. 8799 (“RA 8799”) or the Securities Regulation Code and the rules and regulations to be issued by the SEC. Investment adviser shall mean 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 as to 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. The definition does not include the following: (i) trust department/unit of banks; (ii) stand-alone trust entities; (iii) lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his profession; (iv) insurance agent whose performance of such services is solely incidental to the practice of his profession; (v) any investment banker or dealer whose performance of such services is solely incidental to the conduct of his business as such investment banker or broker dealer and who receives no special compensation therefor; (vi) the publisher of any bona fide newspaper, news magazine, or business or financial publication of general and regular circulation; and (vii) such other persons as the SEC may designate. 

The law also finally defines and provides a penalty for the commission of investment fraud. Investment fraud refers to any form of deceptive solicitation of investments from the public. The definition includes Ponzi schemes and such other schemes involving the promise or offer of profits or returns which are sourced from the investments or contributions made by the investors themselves, boiling room operations, and the offering or selling of investment schemes to the public without a license or permit from the SEC. Any person who commits investment fraud shall be subject to the penalties under RA 8799 and the administrative sanctions provided for in RA 11765.