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Five Things You Need To Know Before Starting A Crypto-Exchange Business In The Philippines

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Five Things You Need To Know Before Starting A Crypto-Exchange Business In The Philippines

  1. You must have the BSP’s approval before you can register your company with the SEC. For most companies, the usual requirement before legitimately operating a business is to simply secure a license with the Securities and Exchange Commission. However, the same route is not true for a crypto-exchange business, as it must first secure an endorsement from the Bangko Sentral ng Pilipinas.To get the BSP’s nod of approval (for SEC registration purposes), the company must pass the rigorous preliminary screening process for determining its eligibility for registration.At this point, the company must prepare, among others, a business plan detailing the company’s purpose, organizational structure, products/services to be offered, target market/network, operational workflow and capital requirements. The business plan must be clear enough to give BSP an idea of what you really intend to do. If your operations will include online transactions, you should also be ready to present your platform. If you pass the preliminary screening, a letter of no objection will be issued in your favor, and you can proceed with your SEC application for registration.
  2. You must secure a BSP license before operating your crypto-exchange business. Once you’re registered with the SEC, should you already start the crypto-exchange operations? Not yet.You must go back to BSP and comply with the second stage requirements, which are listed under the BSP Memorandum No. M-2017- 014. Basically, you will have to submit the SEC incorporation documents and business permit of the company. The company’s officers and directors must submit their personal data sheets and undertakings to comply with AML rules.
  3. You must meet the capitalization requirements. The capitalization requirement may range from less than PHP10 million for small-scale operators to at least PHP50 million for large-scale operators. If your business includes e-money issuance, the requirement is PHP100 million.
  4. You must build a secure IT infrastructure. The use of digital technology is faced with challenges, such as more sophisticated cyber-attack methods. Pursuant to BSP Circular No. 944, Series of 2017, a virtual currency exchange shall put in place adequate risk management and security control mechanisms to address, manage and mitigate technology risks associated with virtual currencies. An effective cyber security program should be established by a virtual currency exchange that provides wallet services. For simple virtual currency operations, installing up-to-date anti-malware solutions, conducting periodic back- ups and being aware of emerging risks and cyber-attacks may suffice.No matter the complexity of your operations, at the end of the day, the integrity and security of your platform must be maintained. Thus, you should seek competent IT professionals or service providers that will help in protecting your clients’ funds and data, and likewise your business.
  5. You must comply with anti-money laundering laws. A virtual currency exchange must register with the Anti-Money Laundering Council within 30 days from the actual date of commencement of operations. Its principal directors, officers, or responsible personnel should attend a seminar on anti-money laundering and terrorist financing, and training for staff should be provided to enable them to detect illegal transactions and/or prevent the exchange from being used for fraudulent purposes. Policies must be implemented to ensure compliance with anti- money laundering regulations. The board of directors should likewise appoint a Compliance Officer who shall be responsible for overseeing the implementation of relevant policies and reporting covered and suspicious transactions.
  And there you have it. If you are thinking of starting a crypto-exchange business in the Philippines, take careful note of the above. The world is changing fast, and it pays to keep abreast of all the latest rules and regulations. For consultation and assistance in setting up your business, email me at satible@mflegal.com.ph. Attorney Stephanie Anne V. Tible. July 11 2019 Photo by Clifford Photography @ Unsplash

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