SEC Relaxes Rules on Single Business Group Limit for Investment Funds

​The Securities and Exchange Commission (SEC) is relaxing the single business group investment limit (SBG Limit) for equity funds, balanced funds, and multi asset funds that have actual exposure to equity securities.

The Commission on March 28 issued SEC Memorandum Circular (MC) No. 2, Series of 2025, which provides for the Rules on Single Business Group Investment Limitation, following several requests from various fund managers on behalf of their respective managed funds, to be exempted from the application of the SBG Limit.

MC 2 provides exemptions to the SBG limit imposed by MC No. 15, Series of 2020, which defines an SBG as a company, its subsidiaries, fellow subsidiaries, parent company and ultimate parent company.

Under the prevailing SBG limit, an investment company is prohibited from investing, in aggregate, more than 20% of its net assets in transferable securities, money market instruments, deposits, and over-the-counter financial derivatives issued by any SBG, provided the investments in OTC financial derivatives with non-investment grade or unrated counterparty shall not exceed 5% of the net assets of the investment company.

MC 2 provides that funds which have no actual investment in financial derivatives shall not be subject to the SBG limit. This includes equity funds, balanced funds, and multi-asset funds that have actual exposure to equity securities.

Instead, these exempted classes of investment companies will be subject to the single entity or issuer investment limitation under Rule 6.8(b) of the implementing rules and regulations (IRR) of Republic Act No 2629, or the Investment Company Act (ICA) until further notice by the Commission.

All investment companies, including the covered funds, shall continue to be subject to all other investment limits and restrictions under existing Commission rules and regulations, as may be applicable. This applies to investment companies with or without actual investments in financial derivatives.

The SEC will not be imposing fines and penalties for any breach of the SBG Limit committed by the covered funds, whether or not they have actual investments in financial derivatives, from May 15, 2020, or the effectivity date of SEC MC No. 15, Series of 2020, until March 27, 2025, or the day before the effectivity date of MC 2.

Any breach of the single entity/issuer limit in Rule 6.8(b) by the covered Funds will result in the imposition of corresponding fines and penalties under the ICA IRR and other applicable laws, rules and regulations.

Meanwhile, investment companies, including equity, balanced funds, and multi-asset funds with actual exposure to equity securities, whether or not such funds have actual investments in financial derivatives, seeking to engage in the cross-border offering of their funds to other ASEAN member jurisdictions as Qualifying Collective Investment Schemes are required to comply with the 20% SBG limit in the ASEAN Standards of Qualifying Collective Investment Schemes.