PHILIPPINE VIRTUAL CURRENCY EXCHANGE REGULATIONS

Introduction
Technology is revolutionizing different business sectors, and in the field of banking and finance, the wave of digital disruption is seen in the rise of virtual currencies (“VC”), a type of digital “currency” created by a community of online users, stored in electronic wallets and generally transacted online as a medium of exchange. Because VCs are not legal tender backed by any government, the value of VCs is solely driven by supply and demand in a speculative market.

The Philippine central bank, the Bangko Sentral ng Pilipinas (“BSP”), has recognized that while VCs have inherent risks because of price volatility, potential for unlawful use, vulnerability to cybersecurity threats, and financial loss (since VC funds are not insured unlike bank deposits), VC systems also have potential benefits to transform the delivery of financial services. It can enhance competition in the remittance and payment market which can result in lower transaction cost and improved services, support the e-commerce industry, and provide financial inclusion for consumers in far flung areas which cannot be reached by traditional financial service providers.

With this in mind, the BSP issued Circular No. 944, Series of 2017, which serves as guidelines to regulate the operations of VC exchanges (the “VCE Guidelines”). In issuing the VCE Guidelines, the BSP does not endorse any VC, such as bitcoin or other cryptocurrencies. Rather, the scope of the VCE Guidelines is to regulate VC exchanges in the Philippines offering services or engaging in actives that provide facility for the conversion or exchange of fiat currency (legal tender) to VC and vice versa. The BSP recognizes that once fiat currency is converted to VC, it becomes easily transferrable, and in this manner a VC exchange operates similar to remittance and transfer companies.

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