Cryptocurrency Regulations in the Philippines (July 1, 2018).
The Law Firm of Mallari Fiel Brillante Ronquillo
The Bangko Sentral ng Pilipinas (BSP) and Securities and Exchange Commission (SEC) are the main regulators of virtual currency in the Philippines.
The virtual currency policies and regulations in the Philippines are discussed below.
Bangko Sentral ng Pilipinas
Section 3 of the New Central Bank Act provides that the BSP shall provide policy directions in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as provided in this Act and other pertinent laws over the operations of finance companies and non-bank financial institutions performing quasi-banking functions, hereafter referred to as quasi-banks, and institutions performing similar functions.
At the onset, the BSP issued the Warning Advisory on Virtual Currencies dated 06 March 2014, wherein it defined a virtual currency as “a form of unregulated digital money, which is not issued or guaranteed by a central bank.”
Several years later, the BSP issued Circular No. 944, Series of 2017, dated 06 February 2017. This time, the BSP recognized that virtual currency (VC) systems have the potential to revolutionize delivery of financial services, particularly for payments and remittances, in view of their ability to provide faster and more economical transfer of funds, both domestically and internationally, and may further support financial inclusion.
With this development, the BSP issued guidelines for virtual currency exchanges.
In December 2017, the BSP issued the Advisory on the Use of Virtual Currencies (29 December 2017) encouraging existing and prospective virtual currency users to deal only with BSP-registered VC exchanges.
On 10 and 16 April 2018, the BSP issued advisories defining virtual currency as a type of digital currency created by a community of online users, stored in electronic wallets, and generally transacted online. The BSP reiterated its earlier stance that a virtual currency is not issued or guaranteed by central banks or government authorities. The advisories summarized the differences between a fiat, e-Money, and virtual currency.
Securities and Exchange Commission
Section 5 of the Securities and Regulation Commission provides:
“The XXX Commission shall have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or a permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspect of the securities market and propose legislation and amendments thereto; XXX”
In December 2017, the SEC issued the draft rules and regulations on crowdfunding. While said rules are not yet operative (as of this posting), the draft includes regulations on raising funds through Internet platforms (programs or applications accessible via the Internet or other similar electronic communication media through which a registered broker or a registered funding portal acts as an intermediary in a transaction involving the offer or sale of securities).
On 08 January 2018, the SEC issued the Advisory on Initial Coin Offerings. Virtual currency was defined as a digital representation of value issued and controlled by its developers and used and accepted among the members of a specific community or users. The SEC stated that some of the new virtual currencies follow the nature of a security, which is under the jurisdiction of the SEC and has to be registered and necessary disclosures have to be made for the protection of the investing public. This advisory, in turn, reinforces the possible applicability of the draft rules on crowdfunding to virtual currencies.
Further, under Section 3.1 of the Securities Regulation Code (SRC), “securities” are defined as shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character. Under Section 3.1(b) in relation to Section 26.3.5(d) of the 2015 IRR of the SRC, a security includes an “investment contract”, which is defined as a contract, transaction or scheme (collectively “contract”) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. An investment contract is presumed to exist whenever a person seeks to use the money or property of others on the promise of profits.
Thus, where the virtual currency offered is in the nature of a security, it should be registered pursuant to Section 8 and 12 of the SRC. Failure to comply with the registration and disclosure requirements may lead to criminal prosecution.
In April 2018, the SEC issued an advisory warning the public against investing their money in investment products offered by unregistered online investment entities. The SEC enumerated the schemes employed by the unregistered entities, which includes the claim that investors may invest their funds in Bitcoin and other cryptocurrencies to justify their earning capacity. The SEC advisory also warned the public of the rampant internet-based Bitcoin and cryptocurrency Ponzi schemes.
With the rising popularity of virtual currencies in the Philippines and globally, it is of utmost importance for persons dealing with virtual currencies to remain vigilant as to the regulations imposed by the government. It is always better to arm yourself with knowledge!
Atty. Stephanie Tible.