CHAIRPERSON Teresita Herbosa of the Securities and Exchange Commission and her fellow commissioners have a lot of studying to do in allowing mutual funds “to sell securities other than shares of their own authorized capital stock.”
While it may be time to expand the reach of mutual fund issuers to accommodate the investing public, in laying down a set of new policies, the SEC would emphasize, as it is its duty to do, the protection of investors from shenanigans who are always ready to take other people’s money and run.
It is up to the SEC officials to rid the mutual funds industry of undesirable players by putting in place the precautionary measures to prevent a recurrence of the anomalies that killed certain companies many decades ago. Their main task though is regulating the industry that requires close close monitoring of investments. To what extent the SEC would do said monitoring without encroaching on mutual funds’ investment prerogatives should be spelled out in the commission’s forthcoming guidelines.
The SEC’s five-person regulatory body issued a legal opinion on April 16, 2015 effectively reversing a commission’s previous policy limiting mutual funds to the sale of securities out of its own authorized capital stock. Apparently, this early restriction was intended to protect the public investors from unscrupulous operators.
Said legal opinion was in response to a query posed by Valerie N. Pama, chief operating officer of Sun Life Asset and Management Co. In issuing it, Herbosa pointed to “the collapse of mutual funds companies in the 1950s” as a major factor in the enactment of the Investment Company Act in 1960.
Not that the SEC may be imposing Sun Life on the public investors. Far from that. The SEC officials must have realized that foreign companies operating in the Philippines are themselves global. As such, why not license them to enable them to compete globally with the Philippines as their base of operation?
Why not? With the SEC’s imprimatur, Sun Life Asset, the mutual fund company of Sun Life of Canada (Philippines) Inc., is looking forward to Herbosa’s assurance that “the corresponding guidelines to put this into effect will be subsequently issued.” The “it” in the quote refers to the sale of securities outside of the authorized capital stock.
In effect, Sun Life will soon be introducing a new product which Filipino investors may not know much about because they have long been entrusting their money to stockbrokers of the Philippine Stock Exchange. That’s an individual’s option which is not how mutual funds are invested. As defined, they are pool of investors’ money placed in investment products which in the case of Sun Life, its choice is issuing “other” securities” in addition to securities which form part of its authorized capital stock.
Despite the Filipinos’ unfamiliarity with new securities such as bonds, the SEC would draft new rules as if the lack of regulations caused the death of mutual funds of the 1960s or even earlier. Yes, there was ICA despite which the industry has never been rehabilitated.
Sun Life has been begging the SEC as early as 2009 for a permit to sell securities outside of its own capital stock but got the regulator’s nod only in April. For the Canadian issuer, it pays to exercise patience while waiting.
With Sun Life’s new investment option, the questions which SEC officials should answer are: Does the SEC has the expertise to oversee the industry? What precautions could the regulator provide the public against the risk of investing in securities which they hardly understand? What if other companies apply to operate mutual funds? Will the SEC also allow them to sell mutual funds after Sun Life has done the “cooking” so to speak?
Sun Life alone has raised the idea of selling securities other than those making up its authorized capital. When the SEC conducted a public hearing on mutual funds, only Sun Life participated in it.
Now that the SEC has accommodated Sun Life with a favourable opinion, will “mutual fund holders, victims of investment companies, other related stakeholders and the general public finally come out and question Sun Life’s mutual funds?” These were the same concerned sectors that the SEC invited to the public hearing but chose to ignore the invitation.