Saturday, April 4, 2015




Section 1.  Legal Basis.  The legal basis of this Rule is Art. 121 and (14) of the Code, quoted as follows:

    "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 operations of financial service cooperatives. xxx

    (2)  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, and 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 xxx"

    Section 2.  Functions of Financial Service Cooperative.  A Financial Service Cooperative (FSC) is a financial organization owned and operated by its members and authorized to provide the following services, 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 the regulation by the BSP.

    Section 3.  Coverage.  (1) All Financial Service Cooperatives organized for the primary purpose of engaging in savings and credit services and other financial services, and (2) Existing cooperatives with savings and credit facilities which have formally notified the Authority of their intention to exercise enhanced functions and have satisfied the requirements of the Authority for conversion to Financial Service Cooperative.

    Section 4.  Registration.  The Articles of Cooperation and By-laws of any FSC, or any amendment thereto, shall be registered with the Authority only if accompanied by a Certificate of Authority issued by the BSP.  Any existing cooperative engaged in credit and multi-purpose activities, after it has notified the Authority of its decision to exercise enhanced functions and satisfied the requirements for the conversion to FSC, shall, upon approval of the Authority and favorable certification of the BSP, register its amended Articles of Cooperation and By-laws by the Authority.

    Section 5.  Documentary Requirements.  In addition to the documents required by the Authority for registration of new cooperative/amendments, the following shall likewise be submitted:

    1.  Certificate of Authority from BSP;
    2.  Resolution of the Board stating that:

        2.1  The function or one of the functions of the cooperative shall be savings, credit and other financial services;

        2.2  The amount of paid-up capital allocated for such purposes shall be at least Ten Million Pesos (P10,000,000.00);

        2.3  Undertaking to accomplish within a year from the issuance of Certificate of Registration to establish the business site equipped with facilities, forms, stationeries, and vault and provide required special training/seminar for officers of the cooperative;

        2.4  Audited Financial Statement for the immediately preceding year in case of existing cooperative; and

        2.5  Other documents, which may be required by the Authority.

Section 6.  Minimum Capitalization Requirements.  Only those cooperatives with minimum paid-up capital of at least Ten Million Pesos (P10,000,000.00) shall qualify to register as FSC without prejudice to additional capital requirements that maybe prescribed by the BSP for a particular financial service regulated by the BSP that will be offered by the FSC.

Section 7.  Reportorial Requirements.  The FSC shall submit the regular reports as required under Rule 8 of this IRR.

Section 8.  Membership and Affiliation.  An FSC shall have 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 By-laws 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 reapply 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 acceptance 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 By-laws and rules of the cooperative, and the rules and regulations of the Authority, notwithstanding the provisions of existing laws to the contrary.

Section 9.  Officers.  The officers of the FSC shall be composed of the Members of the Board of Directors, Committee Members, General Manager or Chief Executive Officer, Secretary, Treasurer and Members holding other positions as may be provided for in their By-laws.

Section 10.  Bond of Accountable Officers.   Every Director, Officer, and Employee handling funds, securities, or property on behalf of the FSC shall be covered by a surety bond to be issued by a duly registered insurance or bonding company for the faithful performance of his/her respective duties and obligations.  The Board of Directors shall determine the adequacy of such funds.

Section 11.  Compensation.  In the absence of any provision in the By-laws fixing their compensation, the Director shall not receive any compensation except for reasonable per diems:  Provided, however, That the Directors and Officers shall not be entitled to any per diem when, in the preceding calendar year, the cooperative reported a net loss or had dividend rate less than the official inflation rate for the year.  Any compensation other than per diems may be granted to Directors by a majority vote of the members with voting rights at a regular or special general assembly meeting specifically called for the purpose:  Provided, further, That no additional compensation other than per diems shall be paid during the first year of existence of the FSC.  Provided, finally that the immediately preceding proviso shall not apply to cooperatives which converted into Financial Service Cooperatives.  The compensation of Officers as well as the Members of the Committees created pursuant to the Code or its By-laws maybe fixed in the By-laws.

Section 12.  Removal of Officers.  All complaints for the removal of any elected officer shall be filed with the Board of Directors.  Such officers shall be given opportunity to be heard.  Majority of the Board of Directors may place the officer concerned under preventive suspension pending the resolution of the investigation which period shall be specified in the By-laws or policies of the cooperative duly approved by the General/Representative Assembly.  Upon findings of a prima facie evidence of guilt, the Board of Directors shall present its recommendation for removal to the General/Representative Assembly.

An elective officer may be removed by three-fourths (3/4) votes of regular members present and constituting a quorum in a regular or special general assembly meeting called for the purpose.  The officer concerned shall be given an opportunity to be heard at said assembly.

Section 13.  Net Worth.  The Net Worth of the FSC shall not, at all times, be less than an amount equal to eight percent (8%) of its risk assets.  The net worth position should be sufficient to meet competitive pressure and adverse economic conditions as they arise.  It should enhance the safety of members' share and keep pace with the growth of the FSC assets.

Section 14.  Deposit and Borrowing Operations.  Savings and Time Deposits with FSC may be opened with a minimum amount to be determined by the Board of Directors.  Only members and its affiliate laboratory cooperative may open savings and/or time deposit accounts.  The FSC, through the Board of Directors as authorized by the General Assembly, may borrow from any source at the best terms and conditions available and in such amount that may be needed.

Section 15.  Reserve Requirements Against Deposit Liabilities.  FSC shall maintain a liquidity Reserve Fund that will be restricted in nature equivalent to at least two (2) per centum of their savings and time deposit liabilities. 

Section 16.  Loans.  The Board of Directors shall be responsible for setting loan policies and lending procedures.  It shall comply with the provisions of R.A. 3765, otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of borrowing, an integral part of every loan contract.

Section 17.  Investment Program.  A sound investment program shall be the sole responsibility and accountability of the Board of Directors.  The scope of the program will depend largely on the FSC size and the extent of its surplus funds.  Investment policies should be in writing and should address the safety, liquidity and yield, diversification, delegation of authority, and valuation/assessment of securities.  The FSC shall not invest in any single entity more than twenty per centum (20%) of its net worth.

Section 18.  Internal Control.  The FSC shall adopt a proper plan of organization, accounting control, accounting system, administrative control, internal control standards, accounting records procedures and other measures to safeguard the FSC's assets, check the accuracy and reliability of accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.

Section 19.  Performance Standards.  A policy of transparency and opennes must be always maintained whereby the Book of Accounts, General/Representative Assembly Board Resolutions and Committee Reports are properly kept and made accessible to members, and the regular financial statements are periodically prepared and made known to the members, to the Authority and to other parties interested in the FSC's operations.

Section 20.  Standard Chart of Accounts.  All FSCs shall adopt the Standard Chart of Accounts and its accompanying Accounting Manual for Credit and Other Types of Cooperatives with Credit Service issued by the Authority.

Section 21.  Manual of Rules and Regulations.  The Authority shall develop a Manual that will cover:  (1) the Rules and Regulations for the safe and sound conduct of operations of FSCs; (2) Rules and Regulations for the appointment of a Conservator or a Receiver as may be necessary in coordination with the BSP, taking into consideration the grounds, powers and procedure under Section 29 and 30 of Republic Act No. 7653 as may be deemed appropriate to FSCs; and (3) the appropriate sanctions and penalties on the FSCs, 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 the 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 appropriate prudential Rules and Regulations applicable to FSCs will be developed by the BSP, in coordination with the Authority.

Section 21.  Revocation of Authority.  The Authority granted, may be revoked by the BSP if any of the grounds for receivership mentioned under Section 30 of Republic Act No. 7653, otherwise known as The New Central Bank Act and Sections 53 and 56 of Republic Act No. 8791, otherwise known as An Act Providing for the Regulation of the Organization and Operations of Banks, Quasi-Banks, Trust Entities and for Other Purposes are present or if the FSC has willfully violated the Code or any of the related rules and regulations.

Section 22.  Prohibition.  The terms 'Credit Cooperatives', 'Financial Service Cooperative', and 'Financial Service Cooperative Federation' shall be used exclusively by those who are duly registered under the Code, and no person, group of persons shall use the said terms unless duly registered with the Authority.  Violations of this prohibition shall be punishable in accordance with Art. 140 of the Code.

(To be followed by Rule 13:  Voluntary Arbitration).

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