SEC Adopts ASEAN SRFs, Establishes Implementing Rules

• Published date: 01 August 2023
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Compliance, Corporate and Company Law, Fund Finance
• Law Firm: SyCip Salazar Hernandez & Gatmaitan
• Author: -1 SyCip Salazar Hernandez & Gatmaitan

Background

The Securities and Exchange Commission ("SEC") issued Memorandum Circular No. 4, Series of 2023 ("Circular") adopting the ASEAN Sustainable and Responsible Fund Standards ("ASEAN SRFS") and establishing rules to implement it in the Philippines. It took effect on 27 April 2023.

The ASEAN SRFS applies to investment companies, including sub-funds of umbrella funds, that seek to offer their shares, either locally or on a cross-border basis, as an ASEAN Sustainable and Responsible Fund ("ASEAN SRF"). It was developed by the ASEAN Capital Market Forum, in line with the growing importance of sustainable finance in the ASEAN, to provide minimum disclosure and reporting requirements for Collective Investment Schemes ("CIS") that seek to qualify under the ASEAN SRFS and to address the need for a comparable, uniform, and transparent disclosure of information to mitigate the risk of, among others, greenwashing.

The Circular also applies to (i) local investment companies and their fund managers seeking to qualify under the ASEAN SRFS and want to either offer locally or on a cross-border basis under the ASEAN CIS Framework and (ii) foreign CIS operators already qualified as an ASEAN SRF in their home jurisdiction seeking to offer in the Philippines under the ASEAN CIS Framework. The ASEAN CIS Framework is the streamlined authorization process for the cross-border offer of CIS, such as unit trust funds or mutual funds.

Minimum disclosure and reporting requirements for ASEAN SRFs

The ASEAN SRF must disclose, among other things, its sustainable investment objectives and strategies. Examples of these sustainable investment strategies include, but are not limited to active ownership, ESG integration, and ethical and faith-based investing. It must also disclose its sustainability risk considerations and how it manages these risks. Other items to be disclosed include the ASEAN SRF's stewardship policies and processes in case of breach of the minimum asset allocation threshold or inconsistency with sustainable investment objectives.

As to the reporting requirements, the ASEAN SRF must provide annual and interim reports on how it has attained its sustainable investment objectives, which are to be made publicly available online on its website.

Qualification of local investment companies as an ASEAN SRF

The local investment company must be incorporated under Philippine laws and authorized to publicly issue shares under the Investment Company Act, Securities Regulations...