By Ike Suarez
To strengthen Philippine efforts against money laundering and terrorism financing, the Bangko Sentral ng Pilipinas (BSP) established early this year regulations to govern the use of virtual currencies (VCs) in the country.
The regulations come in the form of Section 4512N of the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI), which was issued by the BSP?s Monetary Board.
The manual?s ?Guidelines for Virtual Currency Exchanges? have been in effect starting early 2017 and categorize operations of VC exchanges as similar in nature to money remittance and transfer companies, but dealing in virtual currencies not considered as legal tender.
The regulations cover exchanges in the Philippines that facilitate conversion or exchange of legal tender to VCs or vice versa.
As a result, virtual currencies in the Philippines are now required to do the following:
? Secure a Certificate of Registration from the BSP before starting operations;
? Pay registration and annual service fees;
? Follow transactional requirements the BSP has set for virtual currencies;
? Install adequate risk management and security control mechanisms to deal with technology risks;
? Maintain internal control systems;
? Submit regular reports on dates set by the BSP regarding various aspects of their operations.
At the same time, the regulations have listed a set of penalties for violations of these rules, including the following:
? Operating without prior BSP registration;
? Violation of any of the provisions of the country?s Anti-Money Laundering Act;
? Erroneous, delayed, or non-submission of required reports;
? Violations of any of the other rules in the BSP?s MORNBFI.
Under these regulations, virtual currencies are defined as any type of digital unit used as a medium of exchange or form of digitally stored value created by agreement within the community of VC users. Meanwhile, a VC exchange is ?any entity that offers services or engages in activities that provide facility for the conversion or exchange of fiat currency to VC or vice versa.?
Likewise, the BSP has defined fiat currency as ?government-issued currency that is designated as legal tender in its country of issuance through government decree, regulations, or law.?
The BSP regulations further state that virtual currencies have no status as legal tender since these have not been issued by any jurisdiction.
On the other hand, digital units used solely within online gaming platforms are not convertible to fiat currency or actual goods or services.?It also does not include e-money as defined by the BSP.
The BSP has defined VCs to include digital units with any of the following characteristics:
? Has a centralized repository or administration;
? Are decentralized and have no repository or administration;
? Have been created or obtained by computer or manufacturing effort.
The BSP regulations allow registered VC exchanges to perform other money or value transfer services (MVTs). However, other remittance and transfer companies (RTCs) cannot engage in VC transfer services unless registered as an RTC operating as a VC exchange.
Virtual currency exchanges are also required to register with the Anti-Money Laundering Council Secretariat. Besides having their remittance sub-agents accredited, their personnel must also undergo the required training.
Virtual currency exchanges will also have to make single transactions larger than P500,000 or their foreign currency equivalents only by way of check payments or direct credits to deposit accounts.
In issuing the regulations, the BSP has stated that it is the policy of the state to encourage financial innovation while making sure the Philippines will not be used as a conduit for money laundering or the financing of terrorism.
It has also stated that the BSP ?aims to regulate VCs when used for delivery of financial services, particularly for payments and remittances.??These rules also aim to protect consumers and the country?s financial system.
The BSP recently announced it had issued permits to operate to two VC exhanges, but did not identify them.
No statistics exist so far on the extent of VC currency use in the Philippines, but anecdotal evidence suggests there is already a growing number of early-adopters in the country.