The Securities and Exchange Commission issues opinion providing guidance to online platform operators to avoid foreign equity restrictions on advertising and operation of mass media

Recent developments

The Office of the General Counsel (OGC) of the Securities and Exchange Commission (SEC) has issued SEC-OGC Opinion No. 18-21 dated 28 November 2018 (SEC Opinion) which provides guidance on the characteristics of an online or digital platform that will be considered as engaging in advertising and mass media activities.

Implications for online/mobile app platform operators

The SEC Opinion has clarified that not all operators of online or digital platforms are engaged in advertising or mass media. Only those that operate in a manner that meets the characteristics of advertising and mass media activities will be subject to foreign equity restrictions / prohibition under Philippine law.

Digital platform operators with foreign equity must be mindful of the guidance in the SEC Opinion to ensure that their business models will not be considered as advertising or operating mass media in the Philippines.

Under Philippine law, only corporations that are at least 70% Filipino-owned may engage in advertising. On the other hand, the ownership and management of mass media is limited to corporations wholly-owned and managed by Filipino citizens.

What the opinion says

The SEC was requested to confirm if operating the online platform called "Lendr," with a "marketplace" feature, will be considered as engaging in advertising / mass media in the Philippines, and subject to nationality restrictions.

Based on the SEC Opinion, Lendr is a digital platform-as-a-service solution which provides institutions supervised by the Bangko Sentral ng Pilipinas (BSFI) an option to outsource loan-related services electronically and interactively. It is accessible through a mobile-based application and offers a "marketplace" feature, which consists of a page where logos of BSFI partners are displayed and featured.

No information about the loan products of the partner BSFI can be seen by the public and only Lendr users with a Lendr account can view such information. A consumer who desires to avail of a financial product from a BSFI must create a Lendr account to access the products from the BSFIs. Lendr provides the technology service for the BSFI under the marketplace feature. The BSFI and consumer can monitor the status of the application using the Lendr platform.
The SEC Opinion did not categorically state whether the digital platform as described above will be considered as mass media or advertising because according to the SEC, the business model of such platforms can be "variable and mutable." Instead, it reiterated the definition and scope of advertising and mass media, and provided guidance on the characteristics of a digital platform that will be considered as engaging in advertising or mass media activities.

As described in various laws and previous opinions, the SEC Opinion distinguished between advertising and mass media. Essentially, "the main function of an advertising agency is to create and/or conceptualize the content or material to be used to promote or sell goods. It may include selecting for or recommending to its client the avenues or channels to be used in the promotion of their goods and services." On the other hand, "an entity is deemed engaged in mass media if (i) it disseminates information to the general public, and (ii) such information are designed to affect or influence the people's way of thinking and lifestyle."

The SEC Opinion also reiterated that mass media includes electronic or digital media, including the internet, mobile technology and social media.

In this connection, it clarified that the "internet business" that is exempt from foreign equity restrictions in the 11th Foreign Investment Negative List, is limited to "internet access providers" that merely provide internet connection and are not creators of messages or information. On the other hand, where the internet business involves transmittal of information that is intended to influence the masses, the same "internet access providers" that provide internet connection that are not creators of messages or information will still covered by the definition of mass media.

In the foregoing context, the SEC Opinion clarified that an online or mobile app platform operator (which renders service to third-party clients) will not be deemed as engaging in advertising activities if:

  1. It does not write or prepare commercial messages or materials for the products of their third-party clients to be posted in their platform or mobile app.
  2. It does not select for or advise their third-party clients what medium or vehicle to use to disseminate the advertising materials and commercial messages.

An online or mobile app platform operator (which renders service to third-party clients) will not be deemed as engaging in mass media activities if:

  1. There is no pervasive or indiscriminate display to the general public of any promotional materials or advertisements on the products being offered by the third-party clients or even the platform or mobile app itself.
  2. Only the following are made available in the app, website or platform:
    1. enumeration of the services offered by the platform itself;
    2. instruction on how to use the said platform;
    3. enumeration of third-party partner, and thus shall only be limited to the listing of the name or logo of the third-party client.
    4. any other information on the platform required to be disclosed by any law or regulatory measures.
  3. The disclosure of the products and services offered by its third party clients is only for the purpose of completing the transaction enabled by the app, website or platform.

Actions to consider

The SEC Opinion may be viewed as a positive development because it provides additional guidance on when an online platform may be considered as engaging in advertising or mass media, which are activities subject to foreign equity restrictions / prohibition. On the other hand, the same confirms the SEC's position in previous opinions that online and digital businesses may in fact be considered as engaging in advertising and mass media activities under certain conditions.

Foreign-owned corporations that engage in IT development, operation of digital platforms and other companies that engage in online businesses may want to review their business models and the nature and extent of information that is disclosed to the public in their digital platforms and websites, in order to determine and manage any risk areas arising from the SEC Opinion.

Quisumbing Torres may assist in the review of business models and in the risk assessment and minimization pursuant to the guidance provided by the SEC.

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