SEC tightens rules on outsourcing

MANILA, Philippines - The Securities and Exchange Commission (SEC) is tightening the rules that govern the outsourcing of certain functions of brokerage firms.

The new rules focus on transparency and ensuring the capability of local and foreign service providers to help the operations of brokerage firms, the SEC said.

SEC’s Market Regulation Department has proposed the issuance of guidelines on the outsourcing of functions by broker dealers, which is up for public comment.

“Under the proposed guidelines, outsourcing arrangements involving broker dealers must comply with standards and conditions which aim to address and lessen the risks associated with outsourcing,” the SEC said.

In the draft rules, the agency said it recognizes the cost effectiveness for broker dealers to outsource certain activities to third party service providers as the Philippine capital market develops.

However, breaches by service providers might lead to disruptions in the Philippines’ securities market with dire consequence to the investing public, the agency said.

Back office functions or activities that can be outsourced refer to non-material administrative or operational functions like clearing and settlement, information technology, finance and accounting, and marketing and legal services.

“A broker dealer can only outsource its back office functions, provided, further, that broker dealers must not outsource material activities and any activity which involves any interaction or direct contact with the clients of the broker dealer for the purpose of buying and/or selling securities or the solicitation of investments in securities,” it said.