Published February 08, 2017
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The Bangko Sentral ng Pilipinas (BSP) will regulate digital platforms for virtual currency transactions, requiring such businesses to register with the central bank and install internal controls versus dirty money.
Businesses handling conversions from peso or real money to virtual currencies like bitcoin, and vice versa, will soon be required to register and report to the central bank, according to new guidelines set under BSP Circular No. 944 signed on Monday.
“[T]he Bangko Sentral recognizes that virtual currency (VC) systems have the potential to revolutionize delivery of financial services, particularly for payments and remittance, in view of their ability to provide faster and more economical transfer of funds, both domestic and international, and may further support financial inclusion,” read the circular as signed by BSP Deputy Governor and officer-in-charge Nestor A. Espenilla, Jr.
“These benefits, however, should be considered along with the corresponding risks in VCs considering the higher degree of anonymity involved, the velocity of transactions, volatility of prices and global accessibility.”
A bitcoin is a form of easily transferable electronic currency used for paying goods sold through the Internet, which sometimes stands as an investment for its holders given its fluctuating valuations. It is a form of digital money that is not issued or guaranteed by a central bank, and can be sent or received by anonymous users internationally.
Under the law, the BSP is the sole authority that can issue money in the Philippines through bank notes and coins used as legal tender for day-to-day transactions.
Any person can buy and sell bitcoins, which may be traded by tapping the services of bitcoin dealers or brokers who look for good deals for a bitcoin investor; going to bitcoin exchanges -- an establishment that allows bitcoin holders to directly buy and sell the virtual currency; participate in a “mining pool” -- a group of individuals with top-of-the-line computers that can solve complex math problems to unlock codes in exchange for a bitcoin; or look for someone to trade cash or goods for bitcoins.
“You have to make a distinction between the creators of bitcoin -- you cannot regulate that because they are all over the world. So what we’ll regulate are the exchanges where the bitcoins or virtual currencies are exchanged for real money -- the intersection between the virtual world and real world, yun ang binabantayan namin,” Mr. Espenilla told reporters late Monday.
He described virtual currency exchanges as the equivalent of money changers in actual money.
While the BSP “does not intend to endorse” any virtual currency, the regulator wants to keep track of such transactions when used for payments, remittances and other financial services that could impact efforts to combat money laundering and terrorist financing, while upholding consumer protection.
Under the new rules, virtual currency covers any digital unit used as a medium of exchange or electronically stored value, but is currently outside the scope of e-money that is already under the BSP’s watch.
All virtual currency exchanges need to secure a certificate of registration from the BSP to operate as a remittance and transfer company.
They are likewise required to adopt internal controls on risk management and cybersecurity geared towards mitigating technology risks such as malware and hacking.
Last month, the central bank released tighter rules covering remittance agents and money changers, as part of an overall strategy to tighten its watch over non-bank firms.
VC exchanges must also submit quarterly reports on volumes transacted and annual financial statements to the central bank.
Those operating without a BSP registration, failing to submit correct and timely reports, and those found engaging in money laundering will face fines and get their permits cancelled.
The central bank also set a cap for virtual transactions, saying that pay-outs above P500,000 or its foreign currency equivalent can only be made through check payment or direct bank credit, as provided for under the circular.
John Bailon, co-founder and chief executive officer of Bitcoin service provider Satoshi Citadel Industries, said the BSP’s new set of rules formally welcome virtual currency in the local financial system.
“The circular is a positive step for Bitcoin firms and users, for sure. It provides a framework wherein Bitcoin companies such as ours to operate legally and in compliance with rules and regulations set forth by the BSP,” Mr. Bailon said in a text message when sought for comment about the new regulations.
“I believe it is crucial for the BSP to keep such an open line of communication with companies like ours as the industry and the technology further grows.”
Last year, Mr. Espenilla said the Philippines is currently third in the world in terms of bitcoin use, with the number of users having grown by more than double as of the first half of 2015.
The BSP first issued a public advisory to warn against the use of digital currencies in March 2014, when foreign regulators -- particularly in Japan -- banned banks and brokers from handling the new currency following the collapse of Mr. Gox, a Tokyo-based bitcoin exchange.
Re-disseminated by The Asian Banker from Business World