Cryptocurrency asset service providers (CASP) in #Philippines must now have licenses and comply with stringent disclosure requirements under the most comprehensive digital asset framework in the country to date.
Accordingly, CASPs operating domestically are required to register as local companies with a minimum paid-up capital of 100 million Philippine Pesos (equivalent to 1.8 million USD). These new guidelines, initially issued on May 30 under SEC Memorandum Circular No. 5, took effect on Thursday.
Companies are also required to maintain a physical office, segregate customer assets from company assets, and submit regular operational reports. The regulator will also require documentation on any digital assets issued or serviced by the company to fully explain the features, risks, and underlying technology of those assets.
Mr. Nathan Marasigan, Partner at MLaw Office, remarked to #Decrypt that the SEC's move is a "turning point" that could "create compliance hurdles in the short term, especially for smaller companies." However, Mr. Marasigan also believes these new guidelines "will ultimately lay the groundwork for widespread adoption of cryptocurrency by establishing a regulatory regime where none previously existed."
This framework addresses a vast, largely unregulated market affecting millions of cryptocurrency investors in the Philippines, which Philippine Finance Secretary Ralph Recto stated is approximately 107 billion USD in scale.
Although the 100 million Pesos capital requirement is standard for CASP registration, the SEC has provided a potential exemption mechanism, allowing smaller companies to apply for consideration based on specific criteria.
However, the new guidelines may make the technical requirements for operating cryptocurrency services more challenging, at least in the short term. "From the perspective of local companies, there will be some significant challenges related to implementing the new CASP rules," said Luis Buenaventura, head of the cryptocurrency division at the financial super app GCash, in an interview with Decrypt.
Some SEC requirements mandate that "customer data and order execution" must be stored "within the geographical confines of the Philippines," which may imply that "cloud storage such as AWS or Azure is not encouraged," Buenaventura explained. "100 million Pesos is not a large amount if you intend to launch a cryptocurrency exchange by 2025. Customers expect robust applications with millisecond latency, and that can only be achieved with a wealth of resources," Buenaventura added. "Nevertheless, the new framework will truly create a competitive advantage for licensed operators, primarily because they have been operating at a significant disadvantage compared to their unlicensed counterparts for a long time." Such requirements could "prevent international operators from establishing branches here without restructuring their technology systems," he said.
According to the new rules, CASP will be classified as entities subject to the general supervision of the SEC and the Anti-Money Laundering Council. Operational requirements include a transaction monitoring system, a "Know Your Customer" (KYC) process, and quarterly reports on board meeting minutes and risk assessments.
"Regulations are rarely perfect from day one, but as long as the regulatory body has a progressive approach and is always open to refining the framework over time, I think this signals the Philippines' intent to encourage growth and development in this sector," Marasigan concluded.