Crypto Compliance Conversations Part 1: SEC Will Enforce Its Rules

This is part 1 of 2 articles regarding the Crypto Compliance Meetup I attended on March 5, 2020

In the past 3 years, I have written numerous tips, guides, and cryptocurrency adoption articles here on BitPinas.com. If you noticed, however, I paid considerable attention to the legalities of cryptocurrency in the country. Who are the licensed virtual currency exchanges? What is the latest SEC advisory on Digital Asset Exchanges and Offerings? Where to buy Bitcoin with Fiat? The intention is to make sure that you know the proper channels for buying and selling crypto, which I believe will become valuable knowledge that you can use when analyzing whether a cryptocurrency project you found online that’s enticing you to buy their coins is legitimate or not.

Recently, the global organization for anti-money laundering, the Financial Action Task Force (FATF) recommended a “travel rule” when it comes to cryptocurrencies. Simply put, it wants countries to impose to virtual asset service providers within their jurisdictions to implement stricter KYC, including the person’s identification, whenever that person transacted around $1,000 in crypto. (Actually, the licensed exchanges here are already implementing similar KYC procedures even before the FATF recommendation.) But this so-called “travel rule” could be harder to implement given the nature of how cryptocurrency exchanges and virtual asset service providers work.

Maybe it was because of this FATF article that got me invited to Crypto Compliance Conversations, a meetup discussing the current trends when it comes to the compliance industry and cryptocurrencies organized by Emfarsis and sponsored by Elliptic.

In the Philippines, there are key government agencies that have oversight on cryptocurrencies. One of them is the Securities and Exchange Commission. The meetup’s highlight is probably the first one – when Commissioner Kelvin Lee gave a talk in front of an audience who are all working on fintech and cryptocurrency, the industries where the Commission has oversight.

Commissioner Lee (not in his capacity as SEC Commissioner, he disclosed,) said their basic approach to fintech is basically finding the sweet spot. No doubt, fintech can improve financing and access to capital, allow lower costs, and even allow retail investors to have greater participation in the market. Companies in fintech, especially those who deal in cryptocurrencies have used them, and through blockchain, can significantly speed up and lessen the cost of money transfer. But the SEC has concerns; especially when it comes to trading and investments, which the Commission can declare as possible securities.

According to Commissioner Lee, the sweet spot between the current system and fintech are the basic investor principles, such as  KYC, AML, Disclosures, and Transparency. They must all remain. Yes, even if cryptocurrencies’ basic principle is for more anonymity, the SEC will not back down on enforcing its rules. SEC did that to the numerous cease and desist orders they issued against scammers and illegitimate investment companies. He even said he received death threats because of such enforcement.

The Commissioner also cited the agency’s initiatives such as the upcoming Digital Asset Offering (DAO) Rules and Digital Asset Exchange (DAX) Rules. Both topics I have extensively covered here. The legal basis for these upcoming rules, unsurprisingly is still the Securities Regulation Code (SRC). The SRC may be an old law by now but it has premises that allow it to be applied even in cryptocurrencies, as Sec. 3.1. g of the SRC talks about securities that are defined as “Other instruments as may in the future be determined by the Commission.”

The commissioner briefly touched upon the topic of oversight. Due to the very nature of fintech, blockchain, and cryptocurrencies, any company in those industries are in the oversight of the SEC and the BSP (and even the Insurance Commission). Soon, the DAO and DAX Rules will be enforced and affected companies will be given a certain number of days to comply. As a closing statement, the Commissioner simply said the best way is for companies to talk to them first as well as to the other agencies to make sure that they are compliant.

This is part 1 of 2 articles regarding the Crypto Compliance Meetup I attended on March 5, 2020: [Recap] Crypto Compliance Conversations Part 1: SEC Will Enforce Its Rules

Photo by Isabel Laurel