Philippines Introduces Strict Crypto Regulations for Enhanced Transparency

The Philippines has taken a significant step towards formalizing its digital asset landscape with the introduction of new crypto regulations by the Securities and Exchange Commission (SEC). The new framework, outlined in Memorandum Circulars Nos. 4 and 5, mandates that all crypto asset service providers (CASPs) must obtain a license and adhere to strict disclosure requirements. This move aims to enhance transparency and protect investors by requiring detailed disclosures about risks, technology, and key individuals involved in the crypto assets being sold to the public.

Under the new regulations, CASPs are required to submit disclosure documents at least 30 days before beginning marketing activities. These documents must include information on asset ownership, risks, and operations. Additionally, the SEC has set a minimum paid-up capital requirement of 100 million pesos (approximately $1.8 million) to ensure that only eligible firms enter the market. However, the SEC has also provided a mechanism for smaller companies to apply, indicating a willingness to accommodate a range of market participants.

To further ensure compliance and security, the SEC has mandated that crypto companies must have a physical office in the Philippines and pay an initial filing fee of 50,000 pesos. An additional annual supervision fee on revenue will also be levied. The SEC, in collaboration with the Anti-Money Laundering (AML) council, will monitor the CASPs to ensure security, professionalism, KYC policy, and fair access for investors. This comprehensive approach aims to create a safer environment for both investors and service providers.

The new regulations also stipulate that crypto-assets and crypto-asset securities cannot be sold or offered for sale or distribution in the country without a disclosure document or registration. This requirement ensures that investors are adequately informed about the risks and nature of the assets they are purchasing. The SEC's new framework is part of a broader effort to streamline regulations and encourage more listings in the Philippine capital market. New Chairman and CEO Francis Lim has announced the formation of specialized working groups to advise on these regulatory improvements, aiming to create a more favorable environment for digital asset innovation while ensuring robust investor protection.

However, the implementation of these regulations is expected to pose challenges for smaller players who may struggle to meet the stringent capital and regulatory requirements. Luis Buenaventura, head of crypto finance at super-app GCash, highlighted the substantial challenges in implementing the new CASP rules. Despite these challenges, experts believe that the new framework lays the groundwork for broader crypto adoption in the country. Nathan Marasign, Partner at MLaw Office, noted that as long as the regulatory authority takes a progressive approach and stays open to refining the framework over time, this signals a positive step for the Philippines.

The bill, initially issued on May 30 and effective from June 12, states that if a token or crypto behaves like a financial product or security under federal law, it is subject to SEC regulation. The SEC holds the authority to suspend or revoke the CASP license for noncompliance. Guilty CASPs will face a fine of up to 100 million pesos and imprisonment for up to five years. This stringent enforcement mechanism underscores the SEC's commitment to maintaining the integrity of the crypto market.

Overall, the Philippines' new crypto regulations represent a significant milestone in the country's efforts to integrate digital assets into its financial ecosystem. The comprehensive framework not only enhances investor protection but also sets a precedent for other regions looking to regulate the crypto market effectively. As the industry continues to evolve, these regulations will play a crucial role in shaping the future of digital assets in the Philippines, fostering a more transparent and secure market that attracts legitimate players and encourages innovation.