The Bangko Sentral ng Pilipinas, the country’s central bank, is the navigator that steers the country’s financial system. Over the last 12 months, amid a global monetary crisis and economic certainty, the BSP initiated a series of measures, including rate cuts and COVID-19 relief policies which, among other things, included the instruction to banks to delay credit card and debt payments while the entire country was under enhanced community quarantine (ECQ).
But the mandate of the BSP could only extend as far. While it can encourage banks to waive ATM fees, it cannot impose them to actually do so (and now we’re reading about the possibility of increased ATM fees). While the BSP announced interest rate cuts to encourage people to borrow from the bank, thereby increasing spending necessary to jolt the economy, it falls upon the banks themselves if they will actually allow increased lending or not.
All of this, while it proceeds with its goals to digitize the country’s payments. From the National QR Code Standard to the establishment of “Digital Bank” as a bank category, the central bank has had a very busy 2020.
BSP’s Crypto 2020
Table of Contents.
- 1 BSP’s Crypto 2020
- 2 What is the BSP’s position with respect to virtual currencies or cryptocurrencies? Would it be safe for the public to engage in the cryptocurrency market?
- 3 How does the regulatory sandbox for fintech and crypto companies help in the growth of the industry especially in 2020 and beyond?
- 4 What insights does the BSP have from data gathered from VCE companies this year?
- 5 The BSP had been building momentum in 2019, how would you say they responded to the operational challenges of 2020?
- 6 The BSP is often recognized globally for its VCE leadership. What advice would you have for other jurisdictions?
- 7 What is the key benefit that you see for international crypto companies looking to register in the Philippines?
Alongside the Securities and Exchange Commission, no other organization has more influence on the cryptocurrency industry in the Philippines than the Bangko Sentral ng Pilipinas. From financial sandboxes that allowed crypto companies to operate and innovate, to guidelines for virtual currency exchanges, the Central Bank’s support is critical if the crypto industry is to thrive in the Philippines.
Most recently, the BSP released its updated Guidelines for Virtual Asset Service Providers (VASPs), which is now more aligned with the recommendations from the Financial Action Task Force (FATF), the global standard-setting body for anti-money laundering rules and regulations.
The new guideline has updated its requirements for setting up crypto companies and provided classifications for more types of cryptocurrency companies. This is in contrast with the previous Circular No. 944, which appears to only include cryptocurrency exchanges at face value.
In this exclusive interview, BitPinas discussed with the BSP its position on cryptocurrencies, on the insights it gathered from the currently-licensed virtual currency exchanges, and whether or not it is open to more international crypto companies registering in the Philippines.
What is the BSP’s position with respect to virtual currencies or cryptocurrencies? Would it be safe for the public to engage in the cryptocurrency market?
BSP: The BSP views virtual currencies, in particular the technology behind it, as having potential to transform the provision of financial services. However, we are also cognizant of the risks it poses to the integrity and stability of the financial system, as well as to consumers who may be less informed about how virtual currencies work. In February 2017, we issued BSP Circular No. 944 to require licensing for Virtual Currency Exchanges (VCE) – the points where virtual currencies are exchanged to fiat money – to ensure that they operate safely and soundly; they are not used as channels for money laundering, fraud and scams; and they provide their clients with appropriate avenues for redress in case of concerns about VCE services. The BSP has issued public advisories to encourage the public to deal only with BSP-registered VCEs, and to be mindful of the risks of using virtual currencies.
We also remind the public that the BSP does not, in any way, endorse virtual currencies as legal tender, store of value, or investment vehicle. The BSP wants consumers to understand that investing in virtual currencies, due to its volatility, presents enormous risks which might result in financial losses, and there is no guarantee for recovery nor recourse. Hence, a consumer engaged in such activities should be fully prepared to protect his/her accounts and minimize risks by maintaining only a sufficient amount of virtual currencies to address transaction requirements, ensure confidentiality of personal information and transaction details, secure virtual currency-related email accounts, observe basic internet security, and use multi-factor authentication.
How does the regulatory sandbox for fintech and crypto companies help in the growth of the industry especially in 2020 and beyond?
Our sandbox, or “test-and-learn” approach as we love to call it, is primarily a collaborative undertaking between us the regulators and applicants, whether newcomers or incumbent institutions. Having this at our disposal enables us to welcome and sit down with applicants to ensure that only responsible financial innovations will be allowed to be deployed in production. In the course of these activities, coupled with our continuing surveillance of the digital financial landscape, we are often able to recognize areas of the regulatory framework which needs to be updated.
Based on lessons learned, and in-depth industry consultations, we are now expanding the VCE regulations to cover even wider virtual asset service provider (VASP) business models. The circular that will replace the 2017 issuance was approved by the Monetary Board on 21 January 2021. The new policy framework expanded VCE activities, subject to the licensing regime of the BSP – from initially covering those involved in facilitating the exchange of fiat and virtual currencies or virtual assets (VA) – to include the exchange between one or more forms of VAs; transfer of VAs; and safekeeping and/or administration of VAs or instruments enabling control over VAs. All transactions involving the transfer of VA shall be treated as cross-border wire transfer and that 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.
All VASPs shall be subject to the BSP’s licensing requirements and regulatory expectations for money service businesses (MSB), as well as consumer protection, anti-money laundering, countering the financing of terrorism and proliferation financing (AML/CFT/PF) obligations. This new circular is aligned with fintech industry’s best practices and consistent with risk management standards set by international standard-setting bodies such as the Financial Action Task Force (FATF) on AML/CFT/PF.
Moving forward, we are looking to adopt an open finance framework which espouses consent driven sharing of permissioned data between financial institutions and third-party providers. These, along with other initiatives, make us confident that the country’s regulatory landscape will remain ready to support innovations in financial services while retaining sufficient safeguards to protect consumers and all stakeholders.
What insights does the BSP have from data gathered from VCE companies this year?
Among the areas that we wish to highlight this year are some insights gathered from a COVID-19 pandemic impact survey that we have conducted with VCEs and other key FinTech players during the early second half of 2020. On a strategic aspect, VCE respondents emphasized the need to rethink their strategic direction and have considered pursuing digitization initiatives that are more suitable to the new normal. At the operational level, VCE respondents expressed that they are well-positioned to handle issues with respect to information security, money laundering, consumer protection, and critical third-party service providers, while the pandemic has also refocused their efforts towards strengthening their business continuity framework and succession planning to minimize or avoid operational disruptions. VCE respondents also cited positive insights in terms of digital transformation developments, as the pandemic situation has served as an added push for VCEs to integrate their digital initiatives in their business roadmap. All in all, the survey has served as a vital supplement to BSP’s ongoing surveillance of COVID-19 concerns to the VCE industry, while also affirming the benefits reaped from an enabling regulatory environment, as shown in the continuous rise of VCE activities as well as a robust and resilient core IT infrastructure and cybersecurity landscape.
The BSP had been building momentum in 2019, how would you say they responded to the operational challenges of 2020?
We are very fortunate that the BSP has, over the past years, laid down solid infrastructural and procedural foundations that helped us hurdle the challenges brought upon by this pandemic. Amid the mobility constraints, we are able to continue servicing the needs of our stakeholders utilizing digital channels for submissions as well as video conferencing for matters requiring in depth discussions. Leveraging on this approach to complement existing methodologies, the BSP, through its Technology Risk and Innovation Supervision Department (TRISD), was able to process 8 new non-bank EMIs, 2 non-bank e-money issuers (EMIs) with VCE services and 3 VCEs. Another existing EMI was also granted authority to offer VCE. To date, we have 27 non-bank EMIs and 16 VCEs; 4 of which offer both EMI and VCE services.
The BSP is often recognized globally for its VCE leadership. What advice would you have for other jurisdictions?
It might sound cliché, but adopting a digital mindset is a critical first step. As regulators, we are somewhat wired to be quite skeptic on new technology-centric business models given the plethora of risks that we are constantly trying to manage while pursuing our mandates. This is where the commitment to be open-minded in understanding and removing preconceptions on certain technology implementations go a long way for crafting the most suitable regulatory framework for industries such as the VASPs.
What is the key benefit that you see for international crypto companies looking to register in the Philippines?
Earning and maintaining trust of all stakeholders is critical for the success of any financial undertaking. International VASPs who are willing to undergo BSP’s registration procedures will help us build our institutional understanding of their business as well as the management behind their operations. They in turn will better be guided and informed on how to meet our regulatory expectations and comply with established standards. Naturally, if they can secure BSP registration, customers in the country will be more willing to engage them, given the inherent trust that they place on BSP-registered entities.
This article is first published on BitPinas: Bangko Sentral ng Pilipinas | 2020 Year in Review