To strengthen corporate governance and shareholder protection, the Securities and Exchange Commission (SEC) will require all publicly listed companies to submit a policy on material Related Party Transactions (RPT) by October 28. RPT are allowed on condition that when it amount to at least 10% of the total assets, it must be considered as material subject to the Material RPT Rules. Transactions covering at least 10% of the total assets involve, on average, an amount of P3,498,121,059.28 taking into account the total assets of all publicly listed companies for the year ended 31 December 2017. Considering the magnitude and impact of these transactions to the financial position of the company and to the interest of its shareholders, the SEC considers 10% of the total assets of all publicly listed companies as the materiality threshold for RPT covered under the Material RPT Rules. The 10% of the total assets has been acknowledged by the World Bank as an acceptable threshold in determining the materiality for RPT based on international best practices. Based on the disclosure and reportorial requirements, the Advisement Report on material RPT must be filed within 3 days after the execution date of the transaction; the Material RPT Policy with accessible link must be posted on the website within 5 days from submission to the SEC; and a summary of material RPT entered into during the reporting year must be disclosed in the Integrated Annual Corporate Governance Report of all publicly listed companies. For non/late filing or incomplete/incorrect signature in the Material RPT Policy, the imposable penalties are a basic penalty of P10,000 and monthly penalty of P1,000, which will continue to accrue until the Material RPT Policy is submitted to the SEC. For non/late filing or incomplete/incorrect Advisement Report, the imposable penalties are a basic penalty of P30,000 to P40,000 and daily penalty of P200 to P400 without prejudice to administrative penalties that may be imposed by the SEC. Although all related parties of all publicly listed companies can be disqualified on the basis of a final judgment rendered by a court of competent jurisdiction against them for abusive material RPT, the imposable penalties are comparable to a slap on the wrist. Perhaps the SEC should increase the imposable penalties for abusive material RPT to stratospheric level or else related parties will have the ability to bend the Material RPT Rules without breaking.
