The Bangko Sentral ng Pilipinas (BSP) is imposing a three-year moratorium on licenses granted to virtual asset service providers (VASPs) as it reviews the local market for virtual asset or digital currency exchanges.
In a memo (Memorandum Order M-2022-035) she signed on Aug. 10, BSP Deputy Governor Chuchi G. Fonacier said the regular application window for new VASP licenses will be closed for three years starting next month, Sept. 1.
Fonacier, currently the BSP Governor-in-charge, said the BSP will re-assess market developments during the ban on new VASP licenses.
The BSP refers to virtual currencies as virtual assets. It issued a circular to govern VASPs in 2017. The VASP regulation expands the BSP’s previous rules on virtual currency exchanges to include businesses that perform an exchange between one or more forms of virtual assets, the transfer of virtual assets and the safekeeping or administration of virtual assets.
Fonacier called the moratorium a “modified approach” in the granting of VASP licenses which was approved by the BSP’s Monetary Board last Aug. 4.
She said the ban is the BSP’s way of striking a balance between promoting innovation in the financial sector “and ensuring that associated risks remain within manageable levels.” As of end-June, the BSP is supervising 19 VASPs.
With regards to all pending applications for VASP license, Fonacier said applicants that have completed or passed Stage 2 of the licensing process on or
before Aug. 31 will still be processed and assessed for completeness and sufficiency of documentation as well as compliance with the licensing criteria to operate as a VASP based on Stage 3 requirements.
Meantime, all VASP applications that will be deemed incomplete as of Aug. 31 will be considered “closed” applications. “The Bangko Sentral will no longer process these applications further,” said Fonacier.
As for existing BSP supervised financial institutions (BSFls) intending to offer VASP services including non-custodial VASPs for safekeeping and custodial services, Fonacier they can still apply for a license if they have a “stable” Supervisory Assessment Framework (SAFr) composite rating. Due consideration will be given to the BSFI's risk management systems including its client suitability assessment and onboarding processes, as well as financial consumer education and awareness programs in the evaluation of its application, she added.
Fonancier said the BSP recognizes that virtual assets offer opportunities to “promote greater access to financial services at reduced costs, they also pose varied risks that may undermine fi nancial stability.”
“In this regard, the regular application window for new VASP licenses will be closed for three years, subject to re-assessment based on market developments,” she said.
The last time the BSP made any changes in their VASP rules was in early 2021 when it updated and revised its rules on the exchange of virtual assets by expanding the guidelines covering virtual currency exchanges and the registration and the granting of VASP license.
Last year’s changes addressed the regulatory gaps of the existing regulations on 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 virtual asset activities.
The BSP amended its 2017 guidelines on virtual currency exchanges to also cover new business models and activities. The update likewise aligned with financial technology firms’ or fintechs’ best practices and is consistent with risk management standards set by international standard-setting bodies such as the FATF.
On June 25, 2021, the FATF placed the Philippines under its “grey list” as a country with strategic deficiencies when it comes to anti-money laundering/counter-terrorism financing or AML/CTF regulations.