The Bangko Sentral ng Pilipinas (BSP) has updated and revised its rules on the exchange of virtual assets (VA) by expanding the guidelines covering virtual currency exchanges (VCEs) and the registration and the granting of license of virtual asset service providers (VASP).
The amendment basically addressed the regulatory gaps of the existing regulations VASP that were previously identified by the Financial Action Task Force (FATF) after it released its “Guidance for a risk-based approach to virtual assets and virtual asset service providers” in 2019 in response to new technologies, services and products. The FATF described VASPs as entities that facilitate financial services through the conduct of VA activities.
The BSP amended its 2017 guidelines on VCEs to cover new business models and activities which it said should “promote financial innovation while remaining sensitive to the attendant risks.”
“We have seen accelerated growth in the use VCEs in the past three years and it is high time that we broaden the scope of existing regulations in recognition of the evolving nature of this financial innovation and set out commensurate risk management expectations,” said BSP Governor Benjamin E. Diokno in a statement Tuesday. Diokno is back to work after a medical procedure last January 17 to remove a blood clot from a mild head injury.
The Monetary Board approved a framework that expanded activities that could be registered and licensed as the exchange of fiat and VA.
The central bank said the following are now subject to the BSP’s licensing requirements, regulatory expectations for money service businesses (MSB), as well as anti-money laundering, countering the financing of terrorism and proliferation financing (AML/CFT/PF) obligations: exchange between one or more forms of VAs; transfer of VAs; and safekeeping and/or administration of VAs or instruments enabling control over VAs.
The BSP also said that the updated VASP regulatory framework is “aligned with fintech industry’s best practices and is consistent with risk management standards set by international standard-setting bodies such as the FATF on AML/CFT/PF.
According to Diokno, “this will ensure that activities relating to VASP are executed within an unbroken chain of regulated entities.”
The new VASP framework will treat all VA transfer transactions as cross-border wire transfer. “VASPs are expected to comply with corresponding BSP rules governing wire transfer, particularly on the obligation to provide immediate and secure transmittal of originator and beneficiary information from one VASP to another for certain transactions,” said the BSP.
The BSP clarified that all other existing rules and regulations that cover MSBs including outsourcing, liquidity risk management, operational risk management, information technology risk management, and financial consumer protection will have to be complied with to qualify as VASP.
Last October, Diokno already noted the continued increase in virtual currency (VC) transactions.
Pre-pandemic, VC transactions average about six million in terms of volume per year. About three months into the lockdown, the volume was already at 4.3 million as of end-June. In the first six months of 2020, VC transactions amounted to P59 billion or $1.2 billion. This was 3x more compared to same time in 2019.
VC is a digital currency created by a community of online users and stored in electronic wallets or e-wallets, said the BSP, adding that VCs are “not issued or guaranteed by central banks or government authorities”. Fiat currency, even electronic money or e-money since these are the digital version of real currency, are legal tenders.
The BSP has however recognized VCs as beneficial for remittances and wire transfers and electronic payments.