The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, approved the rules on virtual currency exchanges and similar entities in the Philippines.
Virtual currency, or digital money, refers to Internet-based form of currency that exhibits properties similar to physical currencies, but allows for instantaneous transactions and borderless transfer of ownership. Bitcoin is a form of virtual currency.
Bangko Sentral said in a statement the move was consistent with the policy of the regulator to encourage financial innovation while ensuring that the Philippines would not be used for money laundering or terrorist financing activities and the financial system and financial consumers were adequately protected.
“The MB decided to move ahead with adopting a formal regulatory framework in recognition of the rapid growth of VC-based payments and remittance transactions, estimated at around $5 million to $6 million per month for certain major players,” Bangko Sentral said.
“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,” it said.
The Monetary Board said the regulation did not cover virtual currency creators but only focused on entities facilitating the conversion or exchange of any VC into currency or vice versa. It said such exchanges served as the crucial link of virtual currencies with the financial system.
Bangko Sentral said these virtual currency exchanges were considered to be and were similarly treated as companies offering money or value transfer services. The latter are classified as remittance and transfer companies under the new BSP framework for money service businesses.
The bank said the basic requirements for remittance and transfer companies such as registration, minimum capital, internal controls, regulatory reports and compliance with the Anti-Money Laundering Act and its implementing rules and regulations would apply to virtual currency 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,” it said.
Virtual currency exchanges are required to execute a deed of undertaking to implement minimum standards of consumer protection. Transactional requirements for large value pay-outs were also adopted to manage risk. Technology risk management is a minimum requirement for VC exchanges given the nature of their business.
Bangko Sentral said major violations of specific provisions of the regulatory framework and non-compliance with the deed of undertaking would be penalized and could result in cancellation of the BSP certificate of registration or other applicable sanctions depending on the gravity.
BSP-registered financial institutions, particularly banks, are prohibited from dealing with unregistered virtual currency exchanges or similar entities.