The administrative supervision of the Securities and Exchange Commission (SEC) has been transferred back to the Department of Trade, according to Executive Secretary Eduardo Ermita.

In a statement on Wednesday, Ermita said President Arroyo issued Executive Order (EO) 800, to effect the transfer. Ermita said the president signed EO 800 last May 14 but the transfer was announced only today.

The SEC has been under the oversight of the Finance Department since January 2000 under EO 192 as part of efforts then to consolidate and coordinate the supervision of regulatory agencies handling financial products and services.

Under the Finance Department are the Bangko Sentral ng Pilipinas (BSP), Philippine Deposit Insurance Corp (PDIC), Insurance Commission, and, previously, the SEC. These agencies regulate banking, deposit insurance, insurance, and investment products, respectively.

Among the investment products that SEC regulates are equity and bond securities under the capital markets. It also oversees mutual funds and pre-need products.

The head of these regulatory bodies are part of the consultative body Financial Sector Forum (FSF), where they coordinate regulatory methods and policies especially for overlaps between and among the products they regulate. For example, insurance and banking products have become hybrid, as in the case of bancassurance products.

Only last month, BSP governor Amando Tetangco stressed to an audience of insurance industry practitioners the importance of the FSF since it is the nearest that the country has in overseeing the entire financial system.

The current global financial crisis was triggered by the US’ and Western Europe’s lack of a superbody over their diverse and complicated financial system.

Tetangco told the audience, “As we have witnessed in this current crisis, the lines delineating the financial institutions that make up the financial system have become at times blurred, making improved collaboration among financial regulators exigent."

Pre-need

The SEC, however, has lately been a whipping boy for the sins of the bankrupt Legacy Group, which is now facing multiple cases of syndicated estafa. Billions of pesos of its 12 rural banks's depositors and thousands of its three pre-need firms have been preliminary found to have been siphoned off to fund personal and political purposes of its businessman-turned-politician founder, Celso de los Angeles.

Unlike the BSP, which had tried to shut Legacy's banking operations early, the SEC officials appeared unaware of the scam and were surprised when Legacy's pre-need firms closed shop last January. SEC officials were grilled during the senate hearings carried live by media, and two top SEC commissioners were exposed for allegations of improper dealings with Legacy's officers months before the financial troubles of the firm became scandalous.

SEC chair Fe Barin has repeatedly explained that the agency does not have the budget, manpower, nor expertise to oversee the pre-need industry. But her explanations fell on deaf ears, even if the legislators have yet to act on a six-year old proposal to transfer the oversight of the pre-need industry to the Insurance Commission, which experts say is the more appropriate regulator of pre-need products.

Legacy, however, was just the latest pre-need firm to join a list of high profile failures, which include College Assurance Plan, Pacific Plan, and Prudentialife. Yet, the proposed reforms, including the creation of a pre-need standby fund, much like that provided by the PDIC for bank depositors, are not expected to be acted upon as most legislators prepare for the national elections in 2010.

While other governments work on the glaring lesson of the global financial turmoil—that a coordinated approach, or better yet, the creation of a superbody, to oversee the entire financial system is paramount—the EO 800 essentially means the Philippine government is defying that lesson.

Ermita justified SEC's transfer to the DTI, which is not part of the FSF, by saying that the transfer is "necessary and practical" in order to "facilitate the coordination of trade, industry and investment programs and policies."

He added that, as expressed in the EO 800, the "primary role of the DTI is coordinator, promoter, facilitator and regulatory arm of the Executive Branch in trade, industry and investment."