The Philippine Central Bank (BSP) will regulate operators of virtual currencies (VC). The new regulation, a first in Asia, seeks to provide an environment that promotes financial innovation, safeguards the financial system, and reassures financial consumers. Specifically, the regulation is intended to prevent money laundering and terrorist financing activities from occurring in the Philippines. The regulatory framework was approved by the Monetary Board (MB) and encompasses virtual currency exchanges and similar entities within the country.
“The new regulation, a pioneer in Asia, seeks to balance the interests of promoting technological innovations with the potential to improve the level of inclusion and efficiency in the financial system, and to proactively address emerging risks to the system arising out of these new technologies. Specifically, it does not cover VC creators but only focuses on entities facilitating the conversion or exchange of any VC into fiat currency or vice versa. Such VC exchanges serve as the crucial link of VCs with the financial system.”
Adoption of the formal regulatory framework can be attributed to the MB’s recognition of the rapid growth of payments and remittance transactions. Transactions have been estimated to be roughly USD five to six million per month for some prominent individuals.
According to the BSP’s media release, Philippine VC exchanges are to be treated as companies offering money or value transfer services. Transfer services are classified as remittance and transfer companies (RTCs) under the new BSP framework for money service businesses. The basic requirements for RTCs now include:
“[R]egistration, minimum capital, internal controls, regulatory reports and compliance with the Anti-Money Laundering Act, as amended, and its implementing rules and regulations, shall likewise apply to VC exchanges. The approach is essentially aligned with the June 2015 Financial Action Task Force Guidance for a Risk-Based Approach to VCs. It also promotes a level regulatory playing field for financial service providers performing similar services.”
VC exchanges are now required to execute a Deed of Undertaking – an implementation of minimum standards of consumer protection. Requirements for high value pay-outs were also adopted as a means to manage the risk of money laundering and terrorist financing. Furthermore, technology risk management has become a minimum requirement for VC exchanges, if it applies.
Major violations of the VC exchange regulation as well as defiance of the Deed of Undertaking could result in a cancellation of the BSP Certificate of Registration or other applicable penalizations. Banks and other recognized financial institutions are prohibited from conducting business with unregistered VC exchanges and/or similar businesses.