Section 17February 17, 2009, Sec./Art. 17

A new Chapter on Financial Service Cooperatives shall be inserted in this Chapter and shall read, as follows:

CHAPTER XVI

FINANCIAL SERVICE COOPERATIVES

"ART. 119. Definition and Functions of Financial Services Cooperatives. A financial service cooperative is a financial organization owned and operated by its members and authorized to provide the following service, exclusively to its members:

"(a) The functions of credit cooperatives and other cooperatives, including multipurpose cooperatives, that provide savings and credit to their members, and"(b) Other financial services subject to regulation by the BSP.

"The articles of cooperation and bylaws of any financial service cooperative, or any amendment thereto, shall be registered with the Authority only if accompanied by a certificate of authority issued by the BSP, under its official seal.

"The authority granted this provision may be revoked by the BSP if any of the grounds for receivership mentioned under Section 53 and 56 of Republic Act No. 8791 is present or if the financial service cooperative has willfully violated this Code of any of the related rules and regulations.

"The BSP shall issue a cease and desist order to cooperatives exercising the function of a financial service cooperative without authority from the BSP.

"The BSP may charge equitable rates or fees, as may be prescribed by the Monetary Board for licensing, examination and other services which it renders under this Code.

"Upon the favorable certification of the BSP and the prior approval of the Authority, a cooperative, the main purpose of which is to perform savings and credit functions, may convert to financial service cooperative subject to the required qualifications and procedures provided under this Code and in the implementing rules and regulations.

"ART. 120. Membership and Affiliation. A financial service cooperative shall have the two (2) types of members:

"(1) Regular members, who are natural persons; and

"(2) Associate members, who are natural persons but who do not immediately qualify under the requirements for membership set out in the bylaws of the cooperative. All associate members who are natural persons shall be given two (2) years to become regular members. Failure to convert within the said period shall mean automatic withdrawal of their associate membership. They may, however, re-apply as regular members after two (2) years.

"Minors who are dependents of regular members can qualify as associate members. When they reach the age of majority and within two (2) years from acceptances of their associate membership, they have the option to convert into regular members. As associate members, they may open accounts, deposit funds and withdraw from their account, subject to the bylaws and rules of the cooperative, and the rules and regulations of the Authority, notwithstanding the provisions of existing laws to the contrary.

"ART. 121. Regulation and Supervision. The Authority shall exercise lead regulatory powers and supervision over the operations of the financial service cooperatives, to wit:

"(1) Issue rules and regulations for the safe and sound conduct of operations of financial service cooperatives;

"(2) Establish standards of operation for uniform application to all financial service cooperatives;

"(3) Prescribe ratios, ceilings, limitations, or other forms of regulation on the different types of accounts and practices of financial service cooperatives which shall, conform to internationally accepted standards;

"(4) Investigate to determine whether a financial service cooperative is conducting its business in a safe and sound manner;

"(5) Conduct regular examination of the books of accounts, records and other documents of financial service cooperatives;

"(6) Inquire into the solvency and liquidity of a financial service cooperatives;

"(7) Prescribe appropriate fees for supervision and examination of financial service cooperatives to among others, monitor and oversee that existing laws and regulations are complied with;

"(8) Pass upon and review the qualifications and disqualifications of individuals elected or appointed directors or officers and disqualify those found unfit;

"(9) Disqualify, suspend or remove any director or officer who commits or omits an act which render him unfit for the position;

"(10) Select, designate and deputize federations, through an approved accreditation criteria, that will supervise primary financial service cooperatives and issue basic guidelines therefor;

"(11) Require the submission of relevant reports from the deputized supervisor;

"(12) Provide remedial measures in the operations of financial service cooperatives that are in a state of continuing inability or unwillingness to maintain a period of liquidity at the request of the deputized supervisor or when the deputized supervisor fails to perform its functions;

"(13) Accredit external auditors in accordance with standards for audit and financial reporting in cooperation with the PICPA; and

"(14) Appoint a conservator or a receiver as may be necessary subject to the rules and regulations to be promulgated by the Authority in coordination with the BSP, taking into consideration the grounds, powers and procedures under Sections 29 and 30 of Republic Act No. 7653 as may be deemed appropriate to financial service cooperatives.

"The Authority shall include in its rules and regulations, appropriate sanctions and penalties, on the financial service cooperatives, its members, officers and responsible persons, for any action that fails to adhere to sound and prudent management practices or are inconsistent with the provisions of this Code, other applicable laws on cooperatives, rules, regulations, circulars or orders issued by the Authority, and require the cooperative to undertake corrective or remedial measures relative thereto.

"The BSP is authorized to conduct risk-based supervision and examination of financial service cooperatives as it may deem necessary.

"ART. 122. Promulgation of Rules and Regulations. The BSP, in coordination with the Authority, shall prescribe the appropriate prudential rules and regulations applicable to the financial service cooperatives.

"Subject to the regulations of the BSP, the banking laws, rules and regulations shall have suppletory application to financial services cooperatives: Provided, however, That the provisions on access to borrowing or financial assistance to be extended by the BSP of the Philippine Deposit Insurance Corporation (PIDC) shall not apply to financial service cooperatives: Provided, further, That the deposit liabilities of the financial service cooperatives shall not be insured by the PDIC.

"ART. 123. Financial Service Cooperative Federations. Financial service cooperatives may organize themselves into financial service cooperative may organize themselves into financial service cooperative federations, and register their federation with the Authority. These financial service cooperative federations may be deputized by the Authority as the supervisor of their members, and they shall have the following functions:

"(a) Develop standards and provide services for the benefit of its affiliates and their members in accordance with the rules and regulations of the Authority;

"(b) Define common objectives and coordinate activities for the financial service cooperative federation;

"(c) Establish and administer funds such as liquidity fund, loan fund, investment fund, stabilization fund and such other funds;

"(d) Establish a savings guarantee system for the protection of their affiliates' member-depositors within three (3) years from the approval of this Code;

"(e) Exercise on-site and off-site supervisory power over its members;

"(f) Provide remedial assistance to its members concerning their operations and management;

"(g) Act as the liquidator and when applicable, sequester properties to satisfy an obligation secured by a mortgage when authorized by the Authority; and

"(h) Transmit relevant and required information regarding the operations and performance of member-cooperatives to the Authority.

"The Authority and other government agencies, government-owned or controlled corporations and government financial institutions shall provide technical and such other assistance that may be allowed by their charters to financial service cooperative federations for the establishment and/or strengthening of their respective cooperative savings guarantee system. The technical assistance to be provided shall include, among others, training supervision and examination.

"ART. 124. Designation of Existing Unit at the Cooperative Development Authority to Perform Regulatory and Supervisory Functions. Within six (6) months from the approval of this Code, the Authority shall designate the unit to formulate and implement the necessary regulations, rules, policies, guidelines and standards applicable solely to financial service cooperatives and deputized federations in the performance of their savings, credit and such other related enhanced financial service operations.

"The Department of Finance, the BSP and other concerned government agencies shall provide technical and training support for the effective and efficient implementation of the regulatory and supervisory functions and responsibilities of the Authority.

"ART. 125. Prohibition. The terms credit cooperative, financial service cooperative and financial service cooperative federation shall be used exclusively by those who are duly registered under this Code, and no person, group of persons, or organizations shall use the said terms unless duly registered with the Authority. Violations of this prohibition shall be punishable in accordance with Article 140 of this Code."