Rules on Material Related Party Transactions for Publicly-listed Companies

This accounting alert discusses the rules on reporting material related party transactions and the guidelines in drafting policies covering such transactions, as provided by Memorandum Circular No. 10 issued by the Securities and Exchange Commission (SEC).

The Circular contains the Rules on Material Related Party Transactions (RPT), which recognizes that transactions between and among related parties may create financial, commercial and economic benefits to individual institutions and to the entire group, where said institutions belong.  In this regard, related party transactions are generally allowed, provided, that when such a transaction amount to ten percent (10%) or higher of a company’s total assets, it shall be considered as material related party transactions subject to the Rules.

Below are the disclosure/reportorial requirements relative to the Rule:

  • All existing publicly-listed companies shall be required to submit to SEC a policy on material related party transactions in accordance with these Rules within six months from the effectivity of the Material RPT rules.  Companies listed after the effectivity of these Rules shall be required to submit their Material RPT Policy in accordance with these Rules within six months from listing date.  The Policy shall be signed by the Company’s Chairman of the Board and Compliance Officer.
  • The Material RPT policy with accessible link shall be posted on the Company’s website within five (5) days from submission to SEC.
  • The Advisement Report on Material RPTs shall be filed within three (3) calendar days after the execution date of the transaction.  The Report shall be signed by the reporting listed Company’s Corporate Secretary or authorized representative.
  • A summary of material RPT entered into during the reporting year shall be disclosed in the listed Company’s Integrated Corporate Governance Report submitted annually every May 30.

As suggested by the Rules, the group-wide material RPT policies, which have to be adopted by the board of directors of a publicly-listed company shall include, but not be limited to the following:

  • Identification of related parties
  • Coverage of material RPTs
  • Adjusted thresholds
  • Identification and prevention or management of potential or actual conflict of interest which may arise out of or in connection with material RPTs
  • Guidelines in ensuring arm's length terms
  • Approval of material RPTs
  • Self-assessment and periodic review of policy
  • Disclosure requirement of material RPTs
  • Whistle blowing mechanisms
  • Remedies for abusive material RPTs

Attached is a copy of the Circular issued by SEC, which contains the description of the minimum requirements and guidelines in drafting the Material RPT policies.  Included also therewith is a more detailed discussion on the reportorial requirements and the summary of imposable penalties, in case of noncompliance.

 

 

See attached document for the details of this SEC MC.