Interview with Mark Gorriceta, Managing Partner, Gorriceta Africa Cauton & Saavedra

25 Oct Interview with Mark Gorriceta, Managing Partner, Gorriceta Africa Cauton & Saavedra

How would you describe the regulatory landscape for businesses in the Philippines?
The regulatory landscape in the Philippines is undergoing significant reforms aimed at improving the business environment and fostering economic growth, particularly in terms of ushering and strengthening the Philippine’s digital economy. The current administration is very open to these changes and is not only promoting economic growth but also enhancing governance to attract and enable significant public and private developments and investments.

To increase the country’s competitiveness and attractiveness to foreign investors, the government enacted the Ease of Doing Business and Efficient Government Service Delivery Act of 2018. This law aims to streamline government services procedures, particularly in respect to the entry of foreign investors and businesses. In the Philippines, a standard setting-up process for any business involves registration with the Securities and Exchange Commission (SEC), the government agency mandated to regulate corporations in the country, then with the Bureau of Internal Revenue for tax registration and finally with the local government unit for the appropriate local clearances and permits.

Ongoing tax reforms include simplifying our tax system, lowering corporate income tax and broadening the tax base to cover digital transactions. These reforms are intended to protect and safeguard taxpayer rights and welfare and modernize tax administration by providing mechanisms that encourage and simplify tax compliance. All these initiatives make up the government’s comprehensive tax reform program over the past few years.
Efforts to attract foreign investments in the Philippines have increased with recent amendments to the Public Service Act, Foreign Investments Act and the Retail Trade Liberalization Act. Starting April 2023, railways, airports, expressways and telecommunications are now open to 100% foreign ownership. Previously, these sectors were limited to 40% foreign ownership. Currently, public utilities that have foreign ownership limited to 40% are electricity distribution, electricity transmission, seaports, water pipeline distribution, sewerage and public utility vehicles. These systems are deemed vital and have a debilitating impact on national security if they are incapacitated or destroyed. The latest amendments to the Foreign Investments Act are expected to generate more foreign investments to boost the economy for the long term. Moreover, the recently amended Retail Trade Liberalization Act removed the categorization of enterprises and reduced the minimum paid-up capital of foreign retailers from more or less $2.21 million to now only around $444,000 for the retailer’s head office.
Considering the increase in public spending due to the impact of the pandemic and the government’s efforts towards economic growth, these policy changes will help the Philippines recover and stay at pace with global trends. The government is opening more sectors to foreign participation and easing restrictions, with land ownership exclusive to Filipino ownership being perhaps the only non-negotiable as this requires a constitutional amendment. These trends indicate a dynamic regulatory environment, with sectors like mining, energy and telecommunications becoming more accessible to foreign investors.

Now more than ever the Philippines is open and conducive for business under President Marcos’ administration. The new government prioritizes technology and digital infrastructure in driving economic growth. His administration’s proactive approach is evident across all sectors and has ushered in a business-friendly environment.

How important is the Philippines’ digitization strategy in its current plans to bolster the economy?
Digital transformation is being spearheaded by the Department of Information and Communications Technology (DICT), which is heavily involved in introducing high-speed connectivity and digitization through the National Fiber Backbone, the Broadband ng Masa program and eGov PH, the latter of which aims to be a one-stop-shop mobile application that simplifies and minimizes the cost of transactions between the government and Filipino citizens. Aside from these projects, the DICT also regulates and is working with all telecommunication players such as PLDT, Smart Communications and DITO Telecommunity to enhance the country’s digital infrastructure. The DICT also regulates logistics solutions through its private express and/or messenger delivery service license, which is crucial for the e-commerce sector.
As a strong positive indicator of the Philippine government and the private sector’s combined efforts, the Philippines is now one of the fastest-growing digital economies among the major Association of Southeast Asian Nations member states, registering a 93% expansion from 2020 to 2021. One of the key factors influencing the sector’s drastic growth is the effect of COVID-19 pandemic restrictions that made consumers shift and become accustomed to digital platforms in all areas including financial services, government services, retail and various day-to-day economic activities. This shift has caused Philippine regulators to become very open and adaptive to innovative products and services. Key regulators such as the SEC, the Bangko Sentral ng Pilipinas (BSP), and the Insurance Commission (IC) have enacted their own regulatory sandbox frameworks. Our firm regularly assists clients in navigating and applying sandbox licenses through these frameworks.
Notwithstanding Philippine regulators’ open approach to innovative technologies, it must be emphasized that they nonetheless remain heavy-handed when it comes to enforcement to protect the rights of Filipino financial consumers, particularly in instances involving fraud, data privacy issues and cybersecurity. Due to low digital literacy, most Filipino financial consumers are vulnerable to significant risks related to data privacy and cybersecurity. Many Filipinos are not well-informed about properly using platforms or handling their sensitive financial information, which leads to issues such as password sharing and compromising their security. Improving digital literacy – which heavily requires financial consumer education – is crucial to addressing these threats.

What opportunities and challenges are fintech companies facing in local market?
In the Philippines, the main fintech regulator is the BSP, which oversees digital asset exchanges, remittance agents, foreign exchange dealers, money changers and digital banks. Three years ago, they introduced a digital banking license issued to only six banks, including Maya Bank and UnionDigital Bank. The BSP has an active roadmap for digital transformation with the aim for widespread digital payments by 2027. They focus on education campaigns for data privacy and cybersecurity. Recent key laws in the tech and fintech sector include the Internet Transactions Act and the Financial Products and Services Consumer Protection Act, which are aimed at regulating internet transactions and providing safeguards for financial consumers. However, despite developments such as these, current data on the usage of digital financial services shows a disconnect as large segments of the population remain financially excluded. With many Filipinos still unbanked or underbanked and the national identification system not being fully implemented, there is still significant room and opportunity for growth.
To promote financial inclusion, the BSP advocates for open finance and open banking technologies by requiring banks and non-financial institutions to share data through a network of application programming interfaces. The BSP is also exploring wholesale Central Bank Digital Currency to stabilize digital assets and manage exchange rates. Meanwhile, the SEC regulates online lending platforms, which are crucial for many Filipinos in lower income brackets that often face financial challenges between paydays. New innovations such as earned wage access are emerging to provide short-term solutions and allow early access to earned wages.

The Philippines is a promising market not just for fintech, but for tech investors and founders in general due to the country’s high mobile penetration, relatively young population and various traditional financial services that are ripe for innovation and disruption. We have seen Philippine tech start-ups thrive by solving local problems such as lacking transportation infrastructure and services with the rise of motorcycle taxi services. For example, a client of ours started with ride-hailing services and has expanded into food delivery, logistics and now motorcycle taxi services. E-commerce is also booming with giants like Shopee, Lazada, and TikTok Shop setting up local operations.

Which opportunities exist for American companies in the national fintech sector?
The Philippines has always been in sync with the global movement to digitize financial services and has actively issued licenses and sandbox regulations to enable these technologies to take root and develop in the country. Similar to the USA, we host various digital bank licenses, e-money issuers, payment aggregators, financing and lending platforms and even virtual asset service providers. In fact, many of these fintech verticals are expansions of American fintech companies or are part of the portfolio of American-based investment funds. Our firm regularly assists both founders and investors with end-to-end processes for setting up shop, including license acquisition, regulatory and compliance services and even mergers and acquisitions (M&A) transactions for investment rounds.
As of now, the key opportunities that we are seeing are investment streams. Given the current license moratoriums for digital banks, e-money issuers, virtual asset service providers and online lending platforms of lending and financing companies, setting up these types of entities is challenging except for those offering innovative fintech solutions via sandbox licenses. However, these are also the same licenses that hold a significant market share in terms of Filipino consumers’ adoption of digital financial services. Consequently, there is a strong demand in the market for both debt and equity investors to fund and support the operational liquidity of these licensed entities.
Another key opportunity for American companies is to support the rise and adoption of AI in the local fintech and e-commerce sector. Given the global rise of AI, the domestic market is eager to adopt and deploy front-end and back-end use cases of AI, which will further aid in boosting consumer experience as well as transactions for many businesses that rely on the Philippine digital economy.

What does Gorriceta Africa Cauton & Saavedra provide for its clients in the Philippines?
Gorriceta Africa Cauton & Saavedra is consistently ranked as a top-tier and full-service law firm in the Philippines. We are recognized for our excellent legal services, and we take great pride in delivering solutions-based, innovative and efficient legal services tailored to the unique needs of our clients. Our firm is led by 12 partners, with around 50 legal professionals that have grown with us throughout the years. We are now approaching our first decade in the Philippine legal industry.
As managing partner, I also lead our corporate, banking and finance and technology, media and telecommunications groups. For the past five years, we have been recognized as a top-tier firm in M&A, corporate law, taxation, technology, media and telecommunications, data privacy and innovative technologies. We have received numerous awards in these categories from various reputable legal ranking institutions such as the Legal 500, Asia Business Law Journal, Chambers and Partners and the Asian Legal Business Philippine Law Awards. As a full-service law firm, we also handle project finance, environmental, social, and governance (ESG) matters, intellectual property, labor and employment, real estate and construction, infrastructure and special projects and litigation. We are currently very active in representing parties in equity investments of foreign investors; acquisition of highly regulated entities such as those with secondary licenses from the SEC, BSP and DICT; and holders of permits and licenses from the Department of Energy and other regulatory bodies.

Gorriceta Africa Cauton & Saavedra has extensive experience in providing legal and transactional advisory services for corporate matters, especially in M&A deals. The firm is highly regarded and trusted for its advice on all stages of any transaction, especially concerning due diligence, structuring, negotiating, documenting and closing M&A transactions. We act on the buying side or on the selling side for various clients. Through our deep experience and expertise, we have developed industry-specific knowledge that extends to handling cross-border, complicated domestic asset purchases, share-for-share swap deals, public and private M&As, equity investments and divestment of businesses across a wide spectrum of industries.
Additionally, we established a corporate rehabilitation and insolvency practice group in response to specific client matters that arose during the pandemic. This group provides insolvent companies with a way to proceed with both court-supervised or out-of-court rehabilitation proceedings. We also recently appointed a partner to head our project finance and ESG practice groups. Given our significant M&A portfolio with investors from the United States, Europe and Asia, these investors often require robust ESG programs as part of their investment committee requirements, thus necessitating the creation of a dedicated practice group to provide legal assistance.

We are also recognized for our work in capital markets. We have successfully assisted clients in initial public offerings (IPOs), particularly during a time when IPOs were booming in the Philippines. While the current IPO market is slower, we still assist clients in their prospective listing applications with the SEC and the Philippine Stock Exchange, which takes six to nine months. There are many local businesses that could benefit from public capital markets. The regulators are very active, having created a specialist board and a small board for high-growth companies such as tech startups. I often challenge them to accommodate businesses that do not have long financial histories but have proliferated in the country’s digital economy and demonstrated high-growth track records.
In structuring and negotiating deals, we always make sure that our advice is a result of a thorough review of the relevant legal and regulatory frameworks to ensure adherence to local laws while optimizing shareholder benefits and protection in the arrangement of the deal. Moreover, we also conduct legal analysis of the potential regulatory issues that might surface concerning the acquisition or transaction. Our approach in providing transactional advice is impacted by the developments in the legal and regulatory framework relating to M&A in the Philippines. These considerations include restrictions on foreign investments, antitrust regulations and compulsory notification thresholds under the Philippine Competition Act, ESG standards and potential tax exposures. We provide transaction-specific advice and offer out-of-the-box solutions that consider both the legal and regulatory requirements in closing a deal.

I’m fortunate to be ranked among the top 100 lawyers in the Philippines and am the youngest male ever included. I have maintained this recognition since 2020, which is a feat considering that the country has around 46,000 lawyers. Being in the top 100 is a true honor and reflects our firm’s success in competing with larger firms. My journey started in corporate and securities law and has evolved into technology and fintech law.

How has the firm’s experience shaped its journey to becoming a top legal consultant for local companies in the fintech sector?

Exposure to global innovations and regulatory frameworks alongside our clients’ diverse deals has shaped our practice. Our experience includes diverse deals from securing pioneering licenses to advising major players like crypto firms and leading e-wallets. For instance, we advise 90% of the crypto players, 70% of e-wallet companies and the top three e-commerce giants in the Philippines, Shopee, Lazada and TikTok Shop. Notably, we listed the country’s first pure tech company, Xurpas, in the Philippine Stock Exchange in 2014. We have also been partners with Yusarn Audrey for the past nine years, which has offices in Singapore, Malaysia and Thailand. Should one require legal advice for a new business in these countries, we coordinate with our partners to ensure efficient implementation of one’s business model across all four countries simultaneously.

What efforts is the firm making to incorporate artificial intelligence and other new innovations in its legal operations?
Our firm and Aboitiz Data Innovation (ADI) have formed a strategic partnership aimed at revolutionizing the legal industry through the use of responsible artificial intelligence (AI). As we announced during our Law X Tech Summit 2023, this collaboration focuses on leveraging AI to enhance various legal processes, starting with enterprise audio transcription and summarization, contract management and administrative processes. The partnership is designed to increase efficiency, accuracy and accessibility within legal practices while maintaining high standards of data privacy and security. Additional projects under this partnership include the automation of legal processes such as incorporation and post-incorporation registration as well as regulatory compliance tracking. These initiatives aim to streamline workflows and reduce the manual workload for legal professionals to improve overall productivity. The collaboration highlights our commitment to responsible and ethical use of AI in aiming to reshape the legal landscape and explore new avenues for innovation within the industry.