BSP amends rules on equity investments

MANILA, Philippines —  The Bangko Sentral ng Pilipinas (BSP) has issued amendments on the divestment of disallowed equity investments held by banks, which includes sanctions for non-compliance.

The new rules are contained in BSP circular 1199, approved by BSP Governor Eli Remolona Jr. on Aug. 8. The circular amends Section 379 of the Manual of Regulations for Banks.

“Equity investments not allowed under applicable laws shall be divested immediately and without the need of notice from the BSP. Divestment may be made for the whole transaction or, in case of divisible transactions, on the portion not allowed under applicable laws,” the central bank said.

Divestment of disallowed equity investments will be applicable for transactions that are non-compliant with regulatory requirements, failed to meet the conditions for approval, or entered into violation of existing agreements in relation to the extension of financial assistance to the bank by the Philippine Deposit Insurance Corp.

The BSP said disallowed equity investments should be divested within six months from receipt of notice from the central bank.

Failure to do so may prompt the BSP to require the offending bank to divest the non-compliant investment within a specified timeline as set forth in the regulations. The central bank will also reprimand the officer or director of the bank who recommended the investment.

For repeat violations, the bank will again be required to divest the non-compliant investment within the prescribed timeline. In addition, the bank will be subjected to a fine determined by the Monetary Board, which may reach up to P1 million per investment.

The director or officer who recommended the investment will also be fined P20,000 for each investment made.

“The fine shall be shouldered personally by the officer or director provided that if the subsequent offense is an investment in a non-allied enterprise, the fine shall be P40,000,” the BSP said.

A bank that has been directed to divest equity investment should submit a divestment plan within 15 days to the BSP for review. The bank should also submit a progress or status report of the said divestment plan within five days from end of quarter.

Banks which were directed to divest disallowed equity investments prior to the effectiveness of the circular but have not fully complied will be given 90 days to divest their investments.

The circular will take effect after 15 days following its publication in the Official Gazette or in a newspaper of general circulation.