THE CENTRAL BANK has tweaked its regulations to cover more types of virtual asset service providers (VASPs) and better guard against risks amid the heightened use of these services.
“This is in line with the thrust of the Bangko Sentral to promote financial innovation while remaining sensitive to the attendant risks. The said guidelines amended the regulations on virtual currency exchanges (VCE) that were issued in 2017,” the central bank said in a statement on Tuesday.
“We have seen accelerated growth in the use of virtual currency exchanges in the past three years and it is high time that we broaden the scope of existing regulations in recognition of the evolving nature of this financial innovation and set out commensurate risk management expectations,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in the statement.
The BSP’s expanded guidelines for VASPs use the Financial Action Task Force’s (FATF) definition of the types of these providers.
Under the revised framework approved by the Monetary Board, VASP activities covered by the central bank will now include the exchange between one or more forms of virtual assets, transfer of virtual assets, and safekeeping and/or administration of virtual assets or instruments enabling control of virtual assets.
These will be subject to the BSP’s licensing requirements, regulatory expectations for money service businesses and anti-money laundering, countering the financing of terrorism and proliferation financing obligations.
The initial framework released in 2017 only covered providers facilitating the exchange of fiat and virtual assets.
The BSP, however, did not include VASPs participating in an issuer’s offer or sale of virtual asset in its framework, which were also included in the FATF definition. This is because these activities fall under the jurisdiction of the Securities and Exchange Commission, BSP Managing Director for Policy and Specialized Supervision Lyn I. Javier said in a text message.
“The BSP will continue to scan for existing players that would potentially be covered by the expansion of the regulatory scope,” Ms. Javier said.
Under the new guidelines, all transactions involving the transfer of virtual assets will be treated as cross-border wire transfers.
This means service providers of virtual asset-related transactions will now need to comply with regulations on wire transfers, such as providing immediate and secure transmission of originator and beneficiary information from one service provider to another for certain transactions.
Once they secure the BSP’s clearance to perform VASP activities, these service providers will also need to comply with other existing rules for money service businesses, such as those on outsourcing, liquidity risk management, operational risk management, information technology risk management, and financial consumer protection,
The BSP said the VASP regulatory framework is aligned with fintech industry’s best practices and is consistent with international risk management standards, such as those from the FATF.
“This will ensure that activities relating to virtual asset service providers are executed within an unbroken chain of regulated entities,” Mr. Diokno said.
The central bank’s new guidelines for VASPs are a “welcome” and encouraging development for financial technology players, an industry group said, noting the regulator is likely “looking to plug regulatory holes” that may not be under the watch of the Securities and Exchange Commission.
“It seems to me the BSP wants the market to leverage the benefits of blockchain technology to lower costs and introduce competition in the consumer finance industry,” Fintech Alliance.ph Chariman Angelito “Lito” M. Villanueva said in a Viber message.
However, Mr. Villanueva said decentralized finance may challenge the central bank’s ability to regulate.
“I believe regulation of decentralized finance means the ability to properly audit and impose rules on the writers of code (for smart contracts). Either the private sector provides these services or the government has to be in a position to do their own audit,” he said.
He added that the central bank also needs to look into other terminologies that can be used for VASP as the same acronym is used for value-added service providers regulated by the National Telecommunications Commission.
There were 17 money service businesses with virtual currency exchange services authorized by the BSP as of November, data from its website showed. — L.W.T. Noble