In a recent interview with BitPinas, SEC Commissioner Kelvin Lester Lee disclosed the Commission’s plan to collaborate with the National Telecommunications Commission (NTC) in targeting unregistered crypto exchanges and platforms operating in the Philippines, as identified in their advisories.
This week, the SEC issued a significant advisory against Binance, citing its unauthorized operations in the Philippines. Following this, a press release was sent out the next day, reinforcing the points from the interview. The release emphasized the SEC’s intention to work with the NTC to block these websites, projecting the enforcement to commence within the next 90 days.
In response to these unfolding events, BitPinas has reached out to Atty. Rafal Padilla, a legal expert in blockchain, fintech, and the crypto sector in the Philippines, to provide an informed legal analysis and to elaborate on the potential impact of this advisory on the web3 landscape in the country.
Watch the interview here:
Table of Contents
Why did the SEC issue this advisory vs Binance?
- “I don’t think may nagbago sa position ng SEC from a policy perspective. If it is not obvious, probably they won’t say it publicly or officially, but it seems quite obvious from the action they are taking a wait-and-see approach, which is a reasonable approach,” the lawyer explained.
- Before November ended, Binance was found guilty of violating the Bank Secrecy Act (BSA) and causing a financial institution to violate the BSA in the U.S. It is after the Justice Department alleged that Binance failed to implement adequate anti-money laundering (AML) controls, which allowed criminals to use the exchange to launder money and evade sanctions.
- “They must have felt na it is now time to resort to enforcement actions in the Philippines also. It seems like kung may issue sa U.S., probably may issue rin here sa Philippines,” Padilla added.
- “In relation to the advisory, the SEC has pointed out some products that are considered securities. The SEC is a securities regulator and if it sees a platform offering securities in the Philippines without the necessary permit, then that constitutes a violation to the Securities Regulation Code (SRC). SEC as a financial regulator has the mandate to enfore. And the advisory seems to be the initial salvo of what happens next.”
Is the NTC Allowed to Block Websites?
- In 2022, the Anti-Terrorism Council (ATC) also coordinated with the NTC to block the websites of independent media and progressive groups linked to the communist rebels.
- However, former Supreme Court Associate Justice Antonio Carpio and the Integrated Bar of the Philippines disagreed with this move, saying that the NTC does not have the right to block the websites of alleged CPP-NPA groups.
- The same case happens to Binance, but this time, Binance has an alleged violation of the SRC.
- “I cannot answer the question now. But I suspect even the SEC is deliberating or pondering upon that question. We’ll have to see whether that is possible; they will talk to the NTC and probably they will arrive at a consensus.”
- “It’s possible that the lawyer of Binance might question the legality of the NTC order.”
Is Binance Now Banned in PH?
- “Let me just remind that this is just an advisory; in terms of legal effect, this does nothing; it just gives you the idea of what the SEC might do in the coming days, weeks, or months, as well as warning the public already. Pero the advisory cannot legally compel Binance to stop.”
- However, this will all change once SEC issues a cease-and-desist order:
- “And when a cease-and-desist order has been issued, ito na iyong mayroong legal force na kailangan sumunod si Binance.”
- And once the SEC has issued a cease-and-desist order on Binance, “Binance has the option or remedy to file a motion to lift the cease-and-desist order.”
Does the SEC Tag Crypto as Security?
- In the advisory, the Commission said Binance is offering and selling securities without proper registration in the country.
- According to the SRC, “Securities” are shares, participation, or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, or instruments, whether written or electronic in character.
- The specific products of Binance, which are spot trading using leverage, futures contracts, option contracts, cryptocurrency savings accounts, cryptocurrency staking services, and a platform for initial coin offerings, were tagged as security. But no token was labeled as security.
- “But a spot trading product where leverage is offered is effectively a derivatives product. And derivatives is something within the SEC’s jurisdiction.”
Is it Possible That All Unlicensed Crypto Exchanges Will Be Blocked in PH?
- “I don’t think so. As we can see in the SEC Advisory, they specified some products that constitute security. In the case of other exchanges, titignan din ni SEC iyong mga products na ino-offer din nila.”
- The lawyer then advised locally registered exchanges to make sure that the products offered by Binance that were tagged as securities should not be offered anymore.
If License is the Issue, Why Can’t Binance Apply for a License Instead?
- The BSP defines virtual assets as digital units of exchange with a centralized administrator, decentralized with or without an administrator, or created and/or obtained by computing and manufacturing effort. The central bank classifies cryptocurrencies as a type of virtual asset. Virtual Asset Service Providers (VASP) are those that facilitate exchange between virtual asset and fiat currencies, virtual asset to virtual asset, custody or transfer of virtual assets. Thus, crypto exchanges like Binance, Coins.ph, PDAX, and more are required to secure a VASP License to be able to legally operate in the country.
- Click here for the licensed virtual asset service providers in the country.
- However, the BSP also announced that it would not approve any new virtual asset service providers (VASPs) in the next three years. According to the memorandum signed by Deputy Governor Chuchi Fonacier, companies will not be able to apply for a VASP license beginning September 1, 2022. The memorandum stated that this is being implemented to review the current local virtual as set market in the Philippines.
- In June 2022, Changpeng Zhao (aka CZ), then CEO of Binance, announced that the firm is planning to procure licenses from the financial regulators in the Philippines. Binance’s initiative aims to provide more localized services in the country and pour in investment in local banks and payment service providers.
- Then in September 2022, Binance said that it will push through with acquiring a virtual asset services provider (VASP) and electronic money issuers (EMI) licenses by acquiring a local company, Binance Philippines General Manager Kenneth Stern at a roundtable with the media that was also attended by BitPinas.
- That was the last update we covered about Binance’s plans to acquire a VASP license. There were no updates anymore for more than a year.
- “That is I think a potential problem, kasi maroon tayong regulatory gap on how exchanges can be regulated. Will they register as an exchange or as a broker dealer?” the lawyer asked.
- “We’re going to make an assumption that Binance received an advice that (applying for a license within the next 90 days) is not possible at this time.”
- And if, let us say, that Binance successfully secured a license, Binance will be forced to remove products such as derivatives trading, futures trading, lending, and more. Thus, they can only offer spot trading, like what local exchanges do.
There are Many International Exchanges that Illegally Operate in the Country, Why Did Binance Receive the First Advisory?
- “I think one of the answers to that is that Binance is the market leader, the largest crypto exchange in the Philippines.”
- But take note also that it is not the first time that the SEC issued an advisory against an unlicensed centralized crypto exchange.
- In May 2023, it issued a warning against Gemini Trust Company, LLC, which is offering its product, Gemini Derivatives, without the necessary registration and licenses in the Philippines to do so.
- It also issued a stern advisory against OCTAFX/OCTA TRADING, emphasizing that the entity is not authorized to sell or offer securities in the country.
Once Binance Has Been Banned in PH, Can We Use VPN to Bypass This Rule?
- Binance has an anti-VPN tool associated with its KYC process; thus, using a VPN to be able to access Binance could be impossible.
- “I think they will be serious in enforcing anti-VPNs for users to use the app.”
What to Do with Our Assets on Binance?
- In the advisory, the regulatory agency already told Filipinos to close their positions and take out their assets on Binance
- “Ililipat na ba natin sa local exchanges? Mahirap mang gawin but we should always encourage people to self-custody.”
- “Pag-aralan na lang natin how to self custody, at marami namang decentralized exchange platforms. Remember, you have decentralized alternatives that you may consider.”
Are Cash Out Platforms on Binance Considered as Enablers?
- In Binance P2P, users can withdraw their funds via GCash, BPI, UnionBank, and more.
- For Padilla, these payment platforms should not be considered as enablers of an unregistered exchange.
- “I don’t think in itself that it constitutes a violation of the SRC. I see it might be more of a money laundering issue than securities issue.”
- But take note that the advisory did not mention that P2P transactions in Binance are considered as securities.
If I Still Trade in Binance Despite the Advisory, Will I Be Penalized?
- “No. Wala namang illegal if we want to still trade in Binance. Hindi naman iyan parang sugal. But by definition, this is not gambling, and it is not illegal about you trading in Binance and any other unregistered crypto exchange.”
- “But as a lawyer, I feel obliged to echo the advisory of SEC. And it should not matter whether it is a cease-and-desist order, the advisory is clear and we should take heed of that.”
This article is published on BitPinas: [Recap] Is Binance Going to be Banned in the Philippines? | BitPinas Webcast 32
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