By: Abdel Aziz Dimapunong
Chancellor, Islamic Banking Research Institute
Foreword
On these pages are copies of the following governing laws on the Islamic Bank as an Investment House:
(1) Presidential Decree No. 129, otherwise known as the Investment Houses Law, Approved: February 15, 1973.
(2) Batas Pambansa Bilang 66, An Act amending Presidential Decree No. 129, as amended. Approved: April 1, 1980
(3) Presidential Decree No. 1797, An Act further amending Presidential Decree No. 129, as amended, otherwise known as Presidential Decree No. 129, as amended. Approved: January 16, 1981
These laws are vital in conducting due diligence about the Islamic Bank. They provide the legal basis of certain acts of the chairman and the board of directors during the entire history of the Islamic Bank. Moreover, the Islamic Bank is more of an Investment House rather than a commercial bank.
Batas Pambansa Bilang 66 prohibits any person to be a director in any bank while being a director of an Investment House at the same time. This was the basis of the disqualification of directors of the Development Bank of the
The prohibitions in Batas Pambansa Bilang 66 are echoed in Executive Order No. 81, otherwise known as the charter of the Development Bank of the
“Except for the chairman and the vice chairman of the Board, no officer or employee of the Bank (DBP) maybe appointed as a member of the Board of Directors of the Bank: nor shall any director, officer, or employee of any other bank be eligible as a member of the Board of Directors of the Bank. (Emphasis mine)”
When I was designated by the Office of the President of the
In order to set the precedence so that never again will the DBP lord over the Islamic Bank I filed a formal complaint on June 18, 1992 in the Office of the Ombudsman against Roberto De Ocampo. My complaint was against De Ocampo’s violation of law for having held concurrent directorship of the Development Bank of the
The cases I filed were not resolved until several years. Since then, no director of the Development Bank of the
Abdel Aziz Dimapunong
x-------------x
Introduction
The charter of the Islamic Bank provides that it is authorized to source for funds from governments, banks, organizations or other entities and individuals from within the
On the other hand, investments accounts are those funds that are sourced and received by the Islamic Bank with authorization to invest for a given period of time. They constitute the general pool of placements allocated for the investment portfolios of the Islamic Bank: The funders are referred to as investors. They are actually partners of the Islamic Bank. They are not depositors.
In the matter of investing funds from pooled resources, the Islamic Bank is acting in the capacity of an agent or attorney.
Under the charter, the Islamic Bank may allocate part of its own investible funds to finance investment projects and carry on its Islamic banking business directly or indirectly under its own supervision. For this purpose, it is authorized to develop, establish and finance investment companies or affiliates, which shall manage investment projects on behalf of and under the supervision of the Islamic Bank and for its own account.
In the tradition of Investment houses here and abroad, the main players in the business of investment banking are referred to as start-up companies.
The Islamic Bank ascertains the viability and soundness of investment projects by start-up companies. They may be projects which the bank may directly supervise or they may be projects in which the bank may participate with the general pool of investor's funds with authorization. The Islamic Bank supervises these projects.
The authority to operate as Investment House is provided under Section 17 of the charter of the Islamic Bank. Section 17 specifies that the authority of the Islamic Bank as an Investment House shall be “pursuant to Presidential Decree No. 129, as amended” By virtue of this authority, the Islamic Bank may carry on the following:
(1) The Islamic Bank may have a direct interest as a shareholder, partner, owner or any other capacity in any commercial, industrial, agricultural, real estate or development project under mudarabah form of partnership or musharaka joint venture agreement or by decreasing participation, or otherwise invest under any of the various contemporary Islamic financing techniques or modes of investment for profit sharing
(2) The Islamic Bank may carry on commercial operations for the purpose of realizing its investment banking objectives by establishing enterprises or financing existing enterprises, or otherwise by participating in any way with other companies, institution or banks performing activities similar to its own or which may help accomplish its objectives in the Philippines or abroad, under any of the contemporary Islamic financing techniques or modes of investment for profit sharing; and
(3) The Islamic Bank may perform all business ventures and transactions as may be necessary to carry out the objectives of its charter within the framework of the Islamic Bank’s financial capabilities and technical considerations prescribed by law and convention: Provided that these shall not involve any riba or other activities prohibited by the Islamic Shari’a principles.
Whenever the Islamic Bank operates as an Investment House and or as a Venture Capital Corporation, it is under the control and supervision of the Securities and Exchange Commission - rather than the Bangko Sentral.
The provisions of the charter in relation to the authority of the Islamic Bank to operate as an Investment House are echoed verbatim in the Rules and Regulations promulgated by the Bangko Sentral Ng Pilipinas for the Islamic Bank.
On October 21, 1997, PD 129 was amended by Republic Act No. 8366, otherwise known as An Act Liberalizing the Philippine Investment House Industry, amending certain sections of Presidential Decree 129, as amended, otherwise known as the Investment House Law. Under Republic Act No. 8366, it was declared a matter of government policy “to expand and strengthen the capital base of the economy in order to ensure sustained economic growth and development". "Toward this end', this law state, "the Philippine investment house industry is hereby liberalized, increasing foreign equity participation..."
Under Section 2 of RA 8366, Section 5 of PD 129, was amended to read as follows:
"Sec. 5. Citizenship requirements. - At lease forty percent (40%) of the voting stock of any Investment House shall be owned by citizens of the
Foreign nationals may now become members of the board of directors of an Investment House such as the Islamic Bank to the extent of their equity participation. This would be consistent with Section 38 of the charter which is aimed at achieving the international and domestic objectives of Islamic banking business”.
PRESIDENTIAL DECREE No. 129
GOVERNING THE ESTABLISHMENT, OPERATION AND REGULATION OF INVESTMENT HOUSES
WHEREAS, there were pending before Congress, prior to the promulgation of Proclamation No. 1081, dated September 21, 1972, urgent measures proposing the regulation of the so-called investment banks;
WHEREAS, an extensive survey and study of the Philippine financial system had been undertaken in order to determine its adequacy in Philippine economic development, and an integrated set of recommendations were submitted;
WHEREAS, the recommendations, as endorsed with modifications by the monetary authorities and made the basis of this Decree, advocated the enactment of the statutory framework within which the underwriting of securities may be governed and, to the extent that these entities perform quasi-banking functions, to harmonize their operations with national monetary goals.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated September 22, 197, as amended, and in order to effect the desired changes and reforms in the social, economic, and political structure of our society, do hereby order and decree and make part of the law of the land the following:
Section 1. Title. This Decree shall be known as "The Investment Houses Law".
Section 2. Scope. Any enterprise which engages in the underwriting of securities of other corporations shall be considered an "Investment House" and shall be subject to the provisions of this Decree and of other pertinent laws.
Nothing in this Decree shall be understood to preclude other enterprises from engaging in the mere buying and selling of short-term securities of other persons or enterprises.
Section 3. Definitions. For the purpose of this Decree, unless the context otherwise indicates, the following definition of terms are hereby adopted:
(a) "Underwriting" is the act or process of guaranteeing the distribution and sale of securities of any kind issued by another corporation.
(b) "Securities" are written evidences of ownership, interest, or participation, in an enterprise, or written evidences of indebtedness of a person or enterprise. It includes, but is not limited to the instruments enumerated in Section 2 of the Securities Act (Commonwealth Act No. 83, as amended).
Section 4. Organization and registration. Investment Houses shall be organized in the form of stock corporations.
The Securities and Exchange Commission shall not register the articles of incorporation of any Investment House, or any amendment thereto, unless it is satisfied from the evidence submitted to it:
(a) That all the requirements of this Decree and of existing laws or regulations to engage in the business have been complied with;
(b) That the proposed enterprise will not be in conflict with public interest and economic growth;
(c) That the amount of capital, the proposed organization, direction and administration, as well as the integrity, experience and expertise of the organizers and the proposed managerial staff, provide reasonable assurance that the enterprise will be conducted with financial prudence.
In determining compliance with the provisions of subsections (b) and (c) above, the Securities and Exchange Commission shall consult the Monetary Board of the Central Bank of the
All applications for registration of the articles of incorporation of Investment Houses shall be accompanied by:
1. At least three copies of the proposed articles of incorporation; lawphi1.net
2. A statement under oath of the educational background and experience of the organizers, directors, and the proposed managerial staff, as well as in information on any position concurrently held by them in other financial or banking institutions, if any;
3. A projected statement of assets and liabilities of the proposed Investment House;
4. A tentative program of operation for one year, including its investment direction and volume; and
5. Such other information as the Securities and Exchange Commission may require in support of the application and to enable the Commission to determine the justifiability of establishing the proposed enterprise.
Any enterprise already in operation and exercising the powers of an Investment House prior to the effectivity of this Decree shall, within six months therefrom, file an information sheet with the Securities and Exchange Commission in such form and containing such data as the Securities and Exchange Commission may, at its discretion, require, to enable the Commission to determine, in consultation with the Monetary Board, whether the enterprise meets the requirements of this Decree.
Section 5. Citizenship requirements. The majority of the voting stock of any Investment House shall be owned by citizens of the
The majority of the members of the Board shall be citizens of the
Section 6. Prohibitions. Except as may be authorized by the Monetary Board, no director or officer of an Investment House shall concurrently be a director or officer of a bank, as defined in Section 2 of the Republic Act No. 337, as amended: Provided, however, That in no event can a person be authorized to be concurrently an officer of an Investment House and of a bank.
No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No. 337, as amended.
Section 7. Powers. In addition to the powers granted to corporations in general, an Investment House is authorized to do the following:
1. Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities;
2. Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities;
3. Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best-efforts basis securities of other corporations and of the Government or its instrumentalities;
4. Participate as soliciting dealer or selling group member in tender offers, block sales, or exchange offering or securities; deal in options, rights or warrants relating to securities and such other powers which a dealer may exercise under the Securities Act (Act No. 83, as amended);
5. Promote, sponsor, or otherwise assist and implement ventures, projects and programs that contribute to the economy's development;
6. Act as financial consultant, investment adviser, or broker;
7. Act as portfolio manager, and/or financial agent, but not as trustee of a trust fund or trust property as provided for in Chapter VII of Republic Act No. 337, as amended;
8. Encourage companies to go public, and initiate and/or promote, whenever warranted, the formation, merger, consolidation, reorganization, or recapitalization of productive enterprises, by providing assistance or participation in the form of debt or equity financing or through the extension of financial or technical advice or service;
9. Undertake or contract for researches, studies and surveys on such matters as business and economic conditions of various countries, the structure of financial markets, the institutional arrangements for mobilizing investments;
10. Acquire, own, hold, lease or obtain an interest in real and/or personal property as may be necessary or appropriate to carry on its objectives and purposes;
11. Design pension, profit-sharing and other employee benefits plans; and
12. Such other activities or business ventures as are directly or indirectly related to the dealing in securities and other commercial papers, unless otherwise governed or prohibited by special laws, in which case the special law shall apply.
Nothing in this section shall preclude other enterprises not covered by this Decree from engaging in the activities listed under subsections (3) to (11) of this section, except as may otherwise be governed by special laws.
Section 8. Capital. The minimum initial paid-in-capital of any Investment House shall be twenty million (P20, 000,000) pesos.
Section 9. Credit policies. Investment Houses shall coordinate their credit policies with the general credit policies of the Monetary Board of the Central Bank.
Section 10. Reports. Investment Houses shall submit to the Securities and Exchange Commission and to the Central Bank a semi-annual report of operations and financial condition, signed under oath by its chief accountant and verified by its president.
The Securities and Exchange Commission may, at its discretion, require Investment Houses to include their underwriting commitments as contingent accounts in their financial statements.
Section 11. Regulations. Within six months after the approval of this Decree, the Securities and Exchange Commission, in coordination with the Central Bank, shall promulgate the necessary rules and regulations implementing the provisions of this Decree.
Section 12. Central Bank regulatory powers. Investment Houses shall be subject to such regulations of the Central Bank or non-bank financial intermediaries as may be promulgated pursuant to Section 2-B of Republic Act No. 337, as amended. The regulations which may include, but need not be limited to (a) minimum size of fund acceptance or receipt, (b) methods of marketing and distribution, (c) terms of placement and maturities, and (d) uses of funds may be modified by the Monetary Board insofar as they apply to Investment Houses.
The Monetary Board may, at its discretion, determine whether Investment Houses may be permitted to perform quasi- banking functions as defined in Section 2-D, subsection (b) of Republic Act No. 337, as amended. The Monetary Board is hereby authorized, at its discretion, to require any enterprise which is engaged or proposes to engage in quasi-banking functions to incorporate as an Investment House. If the Monetary Board decides to permit Investment Houses to engage in quasi-banking functions, the Board may require as a condition precedent the obtaining of a certificate of authority for the purpose from the Monetary Board.
Whenever the Monetary Board authorizes an Investment House to engage in quasi-banking functions, in accordance with the provisions of this section, the Board may subject Investment Houses to further regulations, pursuant to Republic Act 337, as amended, which may include but need not necessarily be limited to (a) liquidity reserve requirements; (b) capital-to-risk assets ratios; (c) interest rate ceilings; and (d) such other constraints as the Board may deem necessary.
In the exercise of its authority in this section, the Monetary Board may, whenever, it determines that the circumstances so warrant subject an Investment House to special examination.
Whenever on the basis of the reports submitted by, or upon examination of the books and records of, an Investment House, the Central Bank finds that the Investment House is not complying with the provisions of this section, with the pertinent provisions of this Decree, of other laws, or of orders, instructions, rules or regulations issued by the Monetary Board pertaining non-bank financial intermediaries and quasi-banking activities, said Board shall forthwith issue a cease-and-desist order upon the Investment House concerned. Failure on the part of an Investment House to comply with the cease-and-desist order shall subject said Investment House to a fine not exceeding two hundred (P200) pesos for every day the order is violated, to be imposed by the Monetary Board, without prejudice to the penalties provided in Section 16 of this Decree.
Section 13. Applicability of Securities Act. An Investment House may engage in the business of a dealer or a broker under the Securities Act without obtaining a separate license for the purpose as required in Section 14 of the Securities Act (C.A. No. 83, as amended).
Section 14. Applicability of Corporation Law. The provisions of the Corporation Law (Act No. 1459, as amended) insofar as they are not in conflict or inconsistent with the provisions of this Decree shall apply to Investment Houses
Section 15. Transitory provisions. Existing enterprises which are operating as Investment Houses shall, within one year following the approval of this Decree, comply with the requirements hereof, except with respect to the filing of an information sheet which shall be complied with within six months as provided in the last paragraph of Section 4 of this Decree.
Section 16. Penalties for violation. Upon proof that an Investment House is violating or not complying with the provisions of this Decree, of other pertinent laws, of the terms or conditions of its certificate of registration or charter, or of orders, decisions, rulings or regulations issued by the Securities and Exchange Commission or by the Central Bank of the Philippines, the Securities and Exchange Commission shall impose upon the Investment House and collect a fine not exceeding two hundred (P200) pesos per day for every day during which such violation or non-compliance continues, and/or suspend its certificate of registration. The officer or director of the Investment House who ordered or authorized the violation or non-compliance shall be solidarily liable. The fine so imposed shall be paid to the Government of the
Without prejudice to the provisions of the preceding paragraph any person, or any director or officer of an Investment House who violates or does not comply with the provisions of this Decree, of other pertinent laws, of the terms or conditions of its certificate of registration or charter, or of orders, decisions, rulings or regulations issued by the Securities and Exchange Commission or by the Central Bank of the Philippines, shall be punished by a fine of not more than twenty thousand (P20,000) pesos, or an imprisonment of not more than five years or both, at the discretion of the Court.
Section 17. Separability clause. The provisions of this Decree are hereby declared separable, and if any clause, sentence, provision or section hereof, or its application to any person or circumstance should be declared invalid, such invalidity shall not affect the other provisions of this Decree which can be given force and effect without the provisions which have been declared invalid
Section 18. Repeal. All Acts and existing laws inconsistent with this Decree are hereby repealed.
Section 19. Effectivity. This Decree shall take effect immediately.
Done in the City of
X==============x
.
.
BATAS PAMBANSA BILANG 66
.
AN ACT AMENDING PRESIDENTIAL DECREE NO. 129, AS AMENDED, OTHERWISE KNOWN AS "THE INVESTMENT HOUSES LAW"
Section 1. Section 6 of Presidential Decree No. 129 is hereby amended to read as follows:.
"Sec. 6. Prohibitions. — Except as may be authorized by the Monetary Board, no director or officer of an Investment House shall concurrently be a director or officer of a bank, as defined in Section 2 of Republic Act No. 337, as amended: Provided, however, That in no event can a person be authorized to be concurrently an officer of an Investment House and of a bank except where the majority or all of the equity of the Investment House is owned by the bank.
"No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No. 337, as amended."
Sec. 2. Section 7 of the same Decree is hereby amended to read as follows:
"Sec. 7. Powers. — In addition to the powers granted to corporations in general, an Investment House is authorized to do the following:
"(1) Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities;
"(2) Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities;
"(3) Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best-efforts basis securities of other corporations and of the Government or its instrumentalities;
"(4) Participate as soliciting dealer or selling group member in tender offers, block sales, or exchange offering of securities; deal in options, rights or warrants relating to securities and such other powers which a dealer may exercise under the Securities Act (Commonwealth Act No. 83, as amended);.
"(5) Promote, sponsor, or otherwise assist and implement ventures, projects and programs that contribute to the economy's development;
"(6) Act as financial consultant, investment adviser, or broker;
"(7) Act as portfolio manager, and/or financial agent;
"(8) Encourage companies to go public, and initiate and/or promote, whenever warranted, the formation, merger, consolidation, reorganization, expansion or recapitalization of productive enterprises, by providing assistance or participate in the form of debt or equity financing or through the extension of financial or technical advice or service;
"(9) Undertake or contract for researches, studies and surveys on such matters as business and economic conditions of various countries, the structure of financial markets, the institutional arrangements for mobilizing investments;
"(10) Acquire, own, hold, lease or obtain an interest in real and/or personal property as may be necessary or appropriate to carry on its objectives and purposes;.
"(11) Design pension, profit-sharing and other employee benefits plans;
"(12) Such other activities or business ventures as are directly or indirectly related to the dealing in securities and other commercial papers, unless otherwise governed or prohibited by special laws, in which case the special law shall apply;
"(13) Subject to prior approval by the Monetary Board, the provisions of Chapter IV of the Central Bank Charter, and such rules and regulations as may be issued by the Monetary Board, engage in foreign exchange operations which the Monetary Board identified as directly related under Subsection 8 of this section; and
"(14) Act as trustee of a trust fund or trust property, subject to the provisions of Chapter VII of the General Banking Act.
"Nothing in this section shall preclude other enterprises not covered by this Decree from engaging in the activities listed under subsection (3) to (11) of this section, except as may otherwise be governed by special laws."
Sec. 3. The same decree is hereby amended by adding a new section after Section 7 to read as follows:
"Sec. 7-A. Subject to applicable laws and regulations and with prior approval of the Monetary Board, an Investment House may be converted into a commercial bank authorized to operate under an expanded commercial banking authority pursuant to Section 21-B of Republic Act No. 337, as amended.".
Sec. 4. All Acts or parts thereof inconsistent with this Act are hereby repealed or modified accordingly.
Sec. 5. This Act shall take effect upon its approval.
Approved: April 1, 1980
X=============x
Presidential Decree No. 1797
AMENDING FURTHER PRESIDENTIAL DECREE NO. 129, AS AMENDED, OTHERWISE KNOWN AS "THE INVESTMENT HOUSES LAW".
WHEREAS, there must be greater cooperation among governmental agencies to ensure the accomplishment of desired objectives;
WHEREAS, there is a need to provide flexibility to government authorities in setting the capitalization requirement for investment houses in order to enhance the capability of the latter to compete and to finance the requirements of economic development.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Section 1. The third paragraph of Section 4 of Presidential Decree No. 129, as amended, is hereby amended to read as follows:
In determining compliance with the provisions of subsections (b) and (c) above, the Securities and Exchange Commission shall consult with and act pursuant to such recommendation as the Monetary Board of the Central Bank of the
Sec. 2. Section 8 of the same Decree is hereby amended to read as follows:
"Sec. 8. The minimum initial paid-in capital of any Investment House shall be Twenty Million (P20,000,000) Pesos: Provided, That the Monetary Board of the Central Bank may prescribe a higher minimum capitalization if warranted by the circumstances..
Sec. 3. The first paragraph of Section 16 of the same Decree is hereby amended to read as follows:
"Sec. 16. Penalties for violation. — Upon proof that an Investment House is violating or not complying with the provisions of this Decree, of other pertinent laws, of the terms or conditions of its certificate of registration or charter, or of orders, decisions, rulings or regulations issued by the Securities and Exchange Commission, the Commission shall impose upon the Investment House and collect a fine of not exceeding two hundred (P200.00) pesos per day for every day during which such violation or non-compliance continues, and/or suspend its certificate of registration. The officer or director of the Investment House who ordered or authorized the violation or non-compliance shall be solidarily liable. The fine so imposed shall be paid to the Government of the
Sec. 4. All laws, decrees, rules and regulations inconsistent with this Decree are hereby repealed or modified accordingly.
Sec. 5. This Decree shall take effect immediately.
Done in the City of
X============X
REPUBLIC ACT NO. 8366
AN ACT LIBERALIZING THE PHILIPPINE INVESTMENT HOUSE INDUSTRY, AMENDING CERTAIN SECTIONS OF PRESIDENTIAL DECREE NO. 129, AS AMENDED, OTHERWISE KNOWN AS THE INVESTMENT HOUSES LAW
SECTION 1. Declaration of policy. — It is the policy of the State to expand and strengthen the capital base of the economy in order to ensure sustained economic growth and development. Toward this end, the Philippine investment house industry is hereby liberalized, increasing foreign equity participation and raising the minimum capitalization of investment houses to enable them to meet the present and future demands of the market.
SECTION 2. Section 5 of Presidential Decree No. 129, as amended, otherwise known as the Investment Houses Law, is hereby further amended, to read as follows:
SEC. 5. Citizenship requirements. — At least forty percent (40%) of the voting stock of any Investment House shall be owned by citizens of the
Foreign nationals may become members of the board of directors to the extent of the foreign participation in the equity of said enterprise.
SECTION 3. Section 8 of the same Decree is hereby amended to read as follows:
SEC. 8. Capital requirements. — In the case of newly-organized Investment Houses, the minimum paid-in capital shall be Three hundred million pesos (P300,000,000). The minimum paid-in capital of the existing Investment Houses shall be Three hundred million pesos (P300,000,000) to be built up in two (2) years after the effectivity of this Act in the following manner: Two hundred million pesos (P200,000,000) after the effectivity of this Act and an additional Fifty million pesos (P50,000,000) for every year thereafter until the minimum capitalization is attained. The Monetary Board may prescribe a higher minimum capitalization in order to promote and ensure the stability of the Philippine capital market and the competitiveness of the investment house industry in line with the national economic goals. The Monetary Board shall, within six (6) months, prescribe a risk assets to capital ratio and other capital adequacy ratios in order to provide broader protection to the investing public.
SECTION 4. This Act shall take effect fifteen (15) days from its publication in a newspaper of general circulation.
Approved: October 21, 1997
© 2006 Islamic Banking Research Institute, Inc. “Islamic Bank as Investment House” September Ed., by Abdel Aziz Dimapunong is a property of the Islamic Banking Research Institute, Inc. All rights reserved. Except for a copy of the laws that are cited in this journal, reproduction of any other content, text or image, of this writing, in any form or medium without the express written permission of the writer or the Islamic Banking Research Institute Inc. is prohibited This journal is for informational purposes only and is intended solely for the benefit of persons who might be aware of investment opportunities. The services provided by the Islamic Banking Research Institute, Inc. are only for research and information.
No comments:
Post a Comment