December 2021 Articles - Suits the C-Suite | SGV & Co. | EY

27 December 2021

Cecille S. Visto

The digitalization of corporate compliance (Second Part)

Second of two partsThe first part of this article talked about the digital transformation and technology modernization roadmap of the Securities and Exchange Commission (SEC), which included the launch of various digitalization projects aimed at promoting ease of doing business and efficiently delivering government services amid the pandemic and in preparation for the transition to the so-called new normal economy.Aside from company registration discussed in the first part, there are other already rolled-out initiatives and soon-to-be-launched systems on contactless applications and compliance.ONLINE REPORTS SUBMISSIONOn March 15, the SEC launched the Online Submission Tool (OST) that allows companies to submit certain reports online in lieu of its physical lodging. The OST has since been renamed the Electronic Filing and Submission System (eFAST), which permits companies to digitally submit their Audited Financial Statements (AFS), General Information Sheet, Sworn Statement for Foundations, and General Form for Financial Statements, among other reportorial requirements.Corporate filings under eFAST are optional in 2021 but will be made mandatory in 2022 according to the SEC. When eFAST was launched this year, it also experienced some birth pains, such as system errors, downtime, and other online bugs that have affected its optimal use. Because of these, the SEC continued to accept manual filings by registrants who have encountered errors or have not yet applied for its use.We should note that an application to use eFAST needs, among others, the approval of the board of directors. Lodging is also online and the company may designate a primary filer and alternate filers who can access the system. However, there can only be one assigned filer at any given time although designation may be changed at need.With online filing, electronic signatures may be affixed on the documents, like the Independent Auditor’s Report and the Statement of Management Responsibility (SMR) required to be signed by the Chairman, Chief Executive Officer, and Chief Finance Officer, or their equivalent, and attached to the AFS. However, there are exceptions. For instance, the SMR of public or listed corporation must be signed under oath. A Notary Public will still require wet signatures on documents for notarization.The SEC also clarified that although e-signatures may be used, corporations must keep originally signed documents in their files for presentation to the Commission, if required.Previously, the SEC adopted the AFS filing schedule depending on the last digit of a company’s SEC registration number as a means of managing the deluge of filers on the deadline. This system is now supplemented by the eFAST, which helps to further manage any health risks that may arise from congestion at the Commission’s main or satellite offices. The online filing system also significantly reduces use of paper and other resources, including the administrative cost of physically filing the documents with the SEC.While the eFAST system is still undergoing continuous improvement, the SEC envisions that eventually all types of corporate filings can be accepted by the system.APPLICATIONS AND REQUESTSAll types of applications can now be filed online through electronic mail. There are designated email addresses depending on the type of application lodged with different SEC offices, such as corporate reorganization, quasi-reorganization, and equity restructuring with the Financial Analysis and Audit Division; amendment of the Articles of Incorporation or By-Laws to include increase or decrease in the authorized capital stock with the Company Registration and Monitoring Department; and registration of securities with the Securities Registration Division. The Corporate and Partnership Registration Division also accepts petitions for revocation of corporate licenses and other complaints.Requests for monitoring clearances may likewise be requested via email. Given the expected volume of requests, the SEC typically replies within a few days or, based on recent requests, more than a week at the latest. All forms to be accomplished are emailed and clear instructions, including the payment process, are provided.The filing itself is convenient but for certain types of applications, the processing time is still largely dependent on the handling SEC officer assigned to act on the submissions. Since the SEC continues to adopt alternative work arrangements, registrants have to rely on emails from assigned processors on the results of their review, including any request for additional documents. Due to the various restrictions imposed over the past months, securing appointments to follow up pending applications continues to be a challenge for registrants. This no-contact policy, coupled with the workload of SEC reviewers, may contribute to possible delays in the approval of applications and requests.COMPLIANCE REQUIREMENTSThe SEC has also adopted stricter monitoring of corporations, its stockholders, and officers to ensure compliance with Republic Act 9160 or the Anti-Money Laundering Act, as amended. It has likewise done so through the use of technology.In March 2021, the SEC required the online submission of the Beneficial Ownership Declaration (BOTD) Form, which is a mode of disclosure by nominee directors, officers, or shareholders. Under the new transparency rules laid down in Memorandum Circular No. 1, Series of 2021, these nominees must report to the SEC their principals, or the persons for whom they hold the nominal shares.The Commission has imposed penalties for any late disclosure. Interestingly, while tech-savvy stockholders found the procedure of filling up and uploading the forms and the supporting documents relatively easy to follow, foreign shareholders noted the use of only one email platform, Google Mail, to comply with the reportorial requirement.PAYMENTSAs payment for applications and penalties is a necessary part of their transactions, the Commission also introduced the Electronic System for Payments to SEC (ePAYSEC) to facilitate the settlement of registration charges, penalties, and other transaction fees. The platform allows the use of debit and credit cards, digital wallets, and other cashless payment options.While traditional payment facilities are still available, such as payment through the SEC cashier or through Landbank of the Philippines (LANDBANK), more corporations now prefer these more convenient and arguably smarter contactless settlement options.Still, proof of payment must be provided the SEC, which will trigger the processing and release of the requested documents. Similar to the eFAST system, the payment system is undergoing continuous enhancement with some enhancements already rolled out or scheduled for deployment soon.While it is certainly encouraging to see the strides the SEC has made in the digital transformation in these vital functions, it is also interesting to note that there are numerous other enhancements rolled out or scheduled for deployment soon.Among these are a central database and processing software for all the data the SEC will receive from monitored entities. In addition, an accreditation registry system for external auditors and auditing firms will soon be in place. The SEC also wants to establish an integrated complaints management system to keep its registered entities in check. New SEC units have likewise been created, including the PhilFintech Innovation Office to support financial technology innovations while strengthening consumer protection.Alan Brown in his book, Digitalizing Government: Understanding and Implementing the New Digital Business Model, could not have put it more succinctly when he said: “Digital transformation therefore requires redesign and re-engineering on every level — people, process, technology and governance.”The SEC is certainly moving in the right direction. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of EY or SGV & Co.Cecille S. Visto is a Tax Senior Director and Senior Lead Manager of the Entity Compliance and Governance Services of SGV & Co.

20 December 2021

Cecille S. Visto

The digitalization of corporate compliance (First Part)

First of two partsThe COVID-19 pandemic has pushed government agencies to kick-start, if not step up, their digitalization programs to deliver essential services while managing health risks.For the Securities and Exchange Commission (SEC), the mandate to digitalize and adopt technology in the ways we work came with the effectivity of the Revised Corporation Code (RCC) in early 2019.The RCC replaced the almost 40-year-old Batas Pambansa 68 or the old Corporation Code. Even with the rise of digital technology at the turn of the century, it has taken nearly 20 years for the conduct of meetings through remote communication, the submission of corporate documents bearing digital signatures, and filing forms and documents through electronic mail or through a dedicated online portal to become part of the mainstream corporate compliance process.The RCC paved the way but it was COVID-19 which truly accelerated digital transformation. From the incorporation of new entities and filing of applications such as the increase in the authorized capital stock to cashless payment systems and the launch of the Online Submission Tool, the SEC has taken great strides in not just promoting the ease of doing business but also efficiently providing government services, consistent with Republic Act 11032.The SEC has gone on record to emphasize its commitment to staying the course on its digital transformation and technology modernization roadmap, with the end goal of being able to serve its stakeholders from the safety of their homes and workplaces. As the gateway to doing business in the Philippines, the SEC has said that it must continuously innovate and leverage information and communications technology (ICT) to remain “service-focused and interoperable.”This article focuses on the five ways in which the SEC has harnessed the power of technology in the areas of company registration; online reports submission; lodging of applications and requests; compliance requirements; and payments — all of which are targeted to minimize personal interactions while the virus remains a threat.Even early into the implementation of these projects, it is evident that these innovations have improved regulatory efficiency and voluntary corporate compliance of registrants. Stakeholders have the opportunity to focus on their companies’ operations more than complying with tedious requirements.COMPANY REGISTRATIONThe SEC launched the eSPARC or the Electronic Simplified Processing of Application for Registration of Company on April 19, replacing the Company Registration System (CRS), the old online platform. As of last published official count, the SEC has processed nearly 27,000 virtual business registration applications.Before the pandemic, the SEC had tested the waters of web-based registration and licensing with the CRS. While the system eliminated the cumbersome procedure of manually filling up forms, the incorporation process could still not proceed without the submission of the hard copies of documents for review of SEC examiners.With eSPARC, the incorporation process is now fully automated and needs no intervention from SEC processors at any stage, from the name verification on the proposed corporate name to the issuance of the digital Certificate of Incorporation. Those who have tried the system have found that its use significantly enhances the company registration experience.eSPARC was initially available only for the registration of One Person Corporations but this has since been expanded to include all types of domestic corporation regardless of the number of incorporators. Applications for partnerships and foreign corporations may now also be lodged using eSPARC. A subsystem, the One day Submission and E-registration of Companies (OneSEC), even allows for the registration of domestic stock corporations in as little as one day.In his latest report to the Department of Finance, SEC chairman Emilio Benito Aquino said the fastest time recorded for eSPARC processing after the payment of the registration fee is one minute and 14 seconds, while the longest time was two hours and 37 minutes.eSPARC is fairly easy to navigate provided all information and documents are complete. Many of the fields are pre-filled and the required information need only to be supplied. Among the issues that a registrant may encounter and could delay the process include failure to reserve a preferred name that is not distinguishable from a name already reserved or registered under Sec. 17 of the RCC. Under this scenario, the applicant has the option to either appeal the name rejection or apply for a different name.Another possible cause of delay, particularly in the issuance of the final certificate, is the submission of documents, which vary depending on the company type and the review of the SEC processor.However, if all the requirements lodged online are deemed in order, the SEC can issue the digital incorporation certificate, with the original to be released upon the additional presentation of the proof of payment of the assessed registration fees and the submission of originally signed, authenticated, or notarized hard copies of the documentary requirements, as applicable. The submission may be done any time within one year from the date stated in the Interim Certificate of Incorporation.Nevertheless, registrants must remain mindful of the documentation requirements. For instance, although the RCC has removed the subscribed and paid-up capital minimums under Sec. 13 of the old Corporation Code, capitalization requirements under special laws, such as the $200,000 minimum paid-in capital for foreign corporations under the Foreign Investments Act, as amended, must still be complied with. As such, there must be proof of inward remittance of the required capital by the foreign investor.Consistent with its goal of easing doing business, the SEC also accepts registration of locally-executed Articles of Incorporation (AoI) that are accompanied by a Certificate of Authentication signed by all incorporators. The AoI and the Certificate of Authentication need not be notarized; however, documents executed outside the Philippines must still be consularized or contain the Apostille Certification to be recognized by government agencies including the SEC.In the second part of this article, we will discuss the other digital transformation projects of the SEC that are positively impacting compliance and the processing of applications of registered corporations. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of EY or SGV & Co.Cecille S. Visto is a Tax Senior Director and Senior Lead Manager of the Entity Compliance and Governance Services of SGV & Co.

13 December 2021

Faith Mariel N. Reoyan

Why insurers must adapt to meet the changing Philippine landscape under COVID-19 (Second Part)

(Second of two parts)Consumer insurance behavior and preferences are evolving due to changes wrought by the pandemic on the psychological, emotional and economic levels. While the long-term impact of COVID-19 remains tough to predict, insurers must seize the opportunity to transform and reimagine their products and services to meet changing consumer behavior and preferences that will enable sustainable growth opportunities in the new normal.The EY 2021 Global Insurance Consumer Survey reveals relevant insights about the impact of the pandemic as well as its anticipated changes to consumer insurance preferences and buying behavior. To accomplish this, consumers throughout various diverse countries in developed and emerging countries were surveyed between May and August 2021 to gather insights about the consumer insurance landscape. Moreover, the survey also highlighted how insurers can adapt in aligning solutions to cater to changing needs, helping consumers by providing a “safety net” that protects against future financial risk and uncertainty, and enabling digital channels to meet consumer demands while maintaining social distance for safety.In the first part of this article, we discussed the details of insurance consumer behavior and preferences based on financial impact, as well as consumer concerns and product preferences. The most and least impacted segments both reveal unique needs that compel insurers to adjust their products, solutions, and distribution channels to be flexible and easy to understand.In this second part, we discuss the increased shift to digital channels, and the increased prioritization of insurers with corporate social responsibility commitments.THE INCREASED SHIFT TO DIGITAL CHANNELSWith the strict and constantly changing quarantine and lockdown guidelines implemented by the Government and fears of exposure to the virus when stepping outside the home, a majority of consumer activities have shifted online. There has been an increase in consumers who similarly moved online to connect with their agents — from a low 25% before the pandemic to as high as 57% ever since the pandemic started.One key insight here is that insurance companies have the opportunity to re-examine and adjust their digital distribution and communication offerings to address these shifting consumer preferences. Taking their business to the digital space becomes a much more viable path to move forward even beyond the pandemic. This also provides a compelling opportunity for the insurance sector to devise new ways to re-engage relationships with customers through proactive communication and education regarding their products and services.However, despite an increase in online interactions, there was still some reluctance when it came to exchanging personal data. As much as 60% of the most impacted respondents stated a willingness to share personalized communication in exchange for help in meeting their savings goals while only 50% of those in the least impacted segment were willing to share similar personalized communication.These findings point towards an opportunity for insurers to consider investing in training agents to interact effectively with their customers in online spaces. This situation also provides a similar opportunity to ensure the implementation of enhanced cybersecurity protocols, data privacy policies, and the like.PRIORITIZING INSURERS WITH CSR COMMITMENTSThe survey makes it clear that both the most impacted and least impacted segments highly prefer insurance companies with CSR commitments. Of the overall respondents, 46% stated their awareness of how their insurance providers participate in CSR matters. Meanwhile, as much as 58% of the respondents use company websites to understand an insurance company’s commitment to CSR efforts.Both segments indicated that a company’s commitment to CSR initiatives, such as labor practices, income inequality and gender income inequality are important metrics that influence their purchase decision.Over 40% of the respondents from both the most impacted and least impacted groups let a brand’s CSR reputation influence their purchase decision, while an average of 37% from both groups have even chosen one brand over another based on its CSR footprint. The considerable impact of CSR commitments on the purchase decision of consumers must be considered in the insurer’s strategic customer-centric response.PAVING THE PATH FORWARD FOR INSURERSThe pandemic relates to the very objective of insurance: protecting everyone against uncertainty and unforeseen circumstances. Insurers must capitalize on the heightened awareness of the necessity of insurance caused by pandemic, as this challenging environment provides a great chance for insurers to relate more effectively to customers in managing financial risks and navigating uncertainty. Though consumer needs and preferences are evolving in the context of this pandemic, they are unlikely to revert to pre-pandemic demands.Insurers can pave the way to provide customer-centric products and solutions that would align with emerging consumer behavior and preferences. One of the ways to accomplish this is by delivering insurance products through channels that reflect the switch to digital. To remain competitive, insurers must also participate in CSR initiatives, continue to educate consumers on the value of their products and ensure that consumers can clearly comprehend their policies.While the long-term impact of the COVID-19 pandemic remains difficult to predict, insurers who can transform and reimagine their products and services to meet changing consumer behavior and preferences are more likely to find new opportunities for post-pandemic growth. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.Faith Mariel N. Reoyan is a Senior Manager from the Consulting Service line of SGV & Co.

06 December 2021

Faith Mariel N. Reoyan

Why insurers must adapt to meet the changing Philippine landscape under COVID-19 (First Part)

(First of two parts) While the coronavirus disease 2019 (COVID-19) pandemic has financially impacted some parts of business and society in the Philippines more than others, consumers were also affected on psychological, emotional and economic levels. As a result, consumer insurance behaviors and preferences are evolving. This presents insurers with a unique opportunity to adapt their products and distribution models, provide value and support consumers against uncertainty and risks during this unprecedented time.The EY 2021 Global Insurance Consumer Survey reveals relevant insights about the impact and anticipated changes to consumer insurance preferences and buying behavior brought about by COVID-19, as well as how insurers could adapt. EY surveyed consumers in various countries in Africa (South Africa), Asia-Pacific (Philippines, Japan), and North America (Canada, US) between May and August 2021. The objective was to gather insights about how the COVID-19 pandemic impacted the lives of consumers and their evolving insurance needs.In connection to an increased desire for greater financial security, the survey shows that the pandemic brought about a significant interest in obtaining life insurance. The insurance industry can seize this chance to help consumers manage this challenging environment and support their financial well-being. The insurer’s role entails aligning solutions to cater to changing needs, helping consumers by providing a “safety net” protecting against future financial risk and uncertainty, and enabling digital channels to meet consumer demands. Insurers must devise ways to help customers understand better their products and the value they provide to remain relevant moving forward.CONSUMER BEHAVIOR, PREFERENCES BY FINANCIAL IMPACTConsumers across all countries express notably high concern about the effects of the pandemic. However, a sizable difference in scale of the financial impact from the pandemic is reported between the most impacted segment and the least impacted segment. Each segment reveals unique needs that necessitate insurers to adjust their products, solutions, and distribution channels to be flexible and easy to understand.Comparing the results of the financial impact survey conducted in emerging countries like the Philippines and South Africa against the developed countries like Japan, the US, and Canada, we can infer that consumers in emerging markets experienced more severe financial consequences. These include job loss, reduction in work schedules and the need to dip into savings. Nearly half of the emerging markets respondents — 46% at most — experienced these consequences to a great degree compared to 26% or less who felt the same in the developed markets.In the Philippines, the most financially impacted segment is typically younger (under 44 years old), with annual household incomes lower than P249,000 and with less than P1,200,000 in investible assets. They are more likely to serve in occupations where it is less feasible to work remotely. PHILIPPINE CONSUMER CONCERNSIn determining what both segments considered important to them during the pandemic, a key insight from the survey revealed that 88% of the most impacted segment in the Philippines were mostly concerned about losing income from their jobs, while 87% were most concerned about losing a loved one earlier than expected.These concerns, together with the need to dip into savings to support themselves and reduced employment hours, grew significantly over the course of the pandemic. This paved the way for consumers to become increasingly aware of their financial well-being, especially regarding the importance of insurance products. This is especially true among the most impacted segment, shown by a rise of 67% and 66% for health and life products, respectively.Given the financial difficulties they have experienced, those in the most impacted segment are focused on reducing their exposure to similar financial risks in the future. As much as 77% of the most impacted claimed their intent to save more is a result of the pandemic. Emergency plans are also considered top of mind, with over 54% planning to develop their own.PHILIPPINE CONSUMER PRODUCT PREFERENCESThose in the most impacted segment are also more interested in insuring themselves against evolving future risk and express greater interest in purchasing insurance online. Products that appeal the most to this group focus on pandemic-specific solutions that covers hospitalization expense protection or an add-on feature for life insurance that allows access to funds in case of an emergency. Income disruption protection is also mentioned, such as a three-month salary cover, a product that can pay credit card bills and the continuity to fund a college education savings plan in case of job loss caused by the pandemic.These are unmet needs brought about by the pandemic situation that provides insurers room for innovation. They include products that can adjust their prices in exchange for sharing personal data, and a request for usage-based motor policies based on a subscription fee with a premium based on the number of miles driven. The appetite to purchase this kind of protection is especially relevant to the current situation, making it urgent for insurers to launch targeted and value adding customer-centric solutions.In the second part of this article, we discuss the increased shift to digital channels, and the increased prioritization of insurers with corporate social responsibility commitments. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.Faith Mariel N. Reoyan is a Senior Manager from the Consulting Service line of SGV & Co.

December 2021

The digitalization of corporate compliance (Second Part)

The digitalization of corporate compliance (First Part)

Why insurers must adapt to meet the changing Philippine landscape under COVID-19 (Second Part)

Why insurers must adapt to meet the changing Philippine landscape under COVID-19 (First Part)

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