BlockDevs Asia Proposes Digital Asset Safe Harbor on SEC Regulatory Sandbox

• BlockDevs Asia Inc. (BDA) submitted recommendations to the SEC’s Regulatory Sandbox Framework draft, proposing the addition of new sections on Petition for Rulemaking and Token Safe Harbor exemption.
• BDA’s recommendations include clarifying that the comprehensive list of eligible activities is not exhaustive in Section 3 and allowing sandbox applicants to modify their applications before rejection in Section 6.
• BDA suggests removing the requirement for fund segregation in a bank in Section 8, introducing a Petition for Rulemaking provision in Section 14, and adding a new section (Section 16) for digital asset safe harbor exemptions in line with Section 72.1 of the Securities Regulation Code.

In response to the call for comments on the draft proposal for a Regulatory Sandbox Framework, BlockDevs Asia Inc. (“BDA”), a volunteer-driven nonprofit association of blockchain developers in the Philippines and Asia Pacific, has submitted its comments. The BDA proposes the addition of new sections on Petition for Rulemaking and Token Safe Harbor exemption.

• Read the proposal here in full: BlockDevs Asia Comments on SEC Regulatory Sandbox for Emerging Technologies
• Also read: SEC Seeks Public Input for Regulation of Emerging technologies

BDA Submits Recommendations

In response to the Securities and Exchange Commission’s (SEC) call for comments on the draft proposal on the Regulatory Sandbox Framework (RSF), the BDA wrote to the PhiliFintech Innovation Office (PIO) to submit their recommendations.

The letter includes comments, including some suggested changes, to the proposed new sections on Petition for Rulemaking and Token Safe Harbor exemption, which were adopted from US SEC Commissioner Peirce’s proposal.

BlockDevs Asia Inc. suggests that Section 3 of the draft should be changed to clarify that the comprehensive list of eligible activities posted by the SEC is not exhaustive. They emphasize the rapid development of financial technologies and the importance of not disqualifying potential participants due to omissions from the SEC’s list.

The company also proposes amending Section 6 of the Draft SEC RSF to allow sandbox applicants to modify objectionable portions of their application before rejection. They also recommend including the Sandbox Application Form in subsequent releases of the Draft SEC RSF.

Moreover, the proposal recommends amending Section 8 of the draft SEC Regulatory Sandbox Framework to remove the requirement that funds must be deposited in a bank registered with the BSP for the purpose of segregation. The proposal argues that technology can now substitute and enhance aspects of financial services, such as custody, and that enforcing traditional financial institutions for fund custody would hinder innovation.

The proposal also suggested amendment to Section 14 which introduces a clause that authorizes sandbox participants to file a petition for rulemaking (PRM) after they graduate from the sandbox. 

Additionally, a new section, referred to as Section 16, is proposed to establish a digital asset safe harbor, providing exemptions for digital asset issuers under certain conditions, with a focus on disclosure, network development, and public accessibility. This section aligns with Section 72.1 of the Securities Regulation Code (SRC) and aims to facilitate innovation in digital asset offerings within the regulatory sandbox.

Portions of the added proposal (fully viewable here) follow:

(a) Conditions. Pursuant to Section 72.1 of the SRC, the offer, sale, or transaction involving a Digital Asset shall be exempt from registration if the following conditions are satisfied by the Initial Development Team, as defined herein:

1. The Initial Development Team intends for the relevant network, protocol or decentralized application on which the Digital Asset functions to reach Network Maturity within the duration of the regulatory sandbox;
2. Disclosures required under paragraph (b) of this section must be made available on a freely accessible public website;
3. The Digital Asset must be offered and sold for the purpose of facilitating access to, participation on, or the development of the network;
4. The Initial Development Team files a Notice of Reliance in accordance with paragraph (c) of this section; and
5. An Exit Report is filed in accordance with paragraph (f) of this section.

SEC SRF Comment Request

Earlier this month, the Commission issued a draft proposal for a Regulatory Sandbox Framework aimed at promoting technological innovation in financial services. The SEC is welcoming public feedback until October 10, 2023.

To provide feedback on the draft proposal, the public can send their opinions in written form to Atty. Paolo Montano M. Ong at the 15th Floor, PhiliFintech Innovation Office (SEC), the SEC Headquarters, 7907 Makati Avenue, Salcedo Village, Barangay Bel-Air, Makati City, 1209, Metro Manila. Alternatively, digital comments can be submitted via email to fintech@sec.gov.ph. 

What is the regulatory sandbox?

The Regulatory Sandbox Framework in the Philippines provides a controlled environment for businesses to test innovative financial products and services with an emphasis on investor protection. 

It enables the SEC to adjust legal and regulatory requirements based on the risk level associated with participants’ activities. The sandbox encourages collaboration among regulators, innovators, and stakeholders, using real data to enhance regulations and policies concerning emerging technologies.

This article is published on BitPinas: BlockDevs Asia Submits Comments for SEC’s Sandbox Framework

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