When virtual currencies such as Bitcoin were gaining usage in the Philippine market, the Bangko Sentral ng Pilipinas (“BSP”) issued a cautionary directive through an advisory in 2014.1 The BSP advised the public of the features, benefits and attendant risks when dealing with virtual curencies. 2 Following the rise in the use of virtual currencies for payments and remittances in the Philippines, the BSP issued Circular No. 944, series of 2017 (“BSP Circular No. 944”) which established a formal regulatory framework for Virtual Currency Exchanges (“VCEs”). As of 30 November 2020, there are seventeen (17) VCEs registered with the BSP.3 Likewise, the BSP also approved the first installation of a bitcoin ATM inside a branch of UnionBank, a commercial bank, located at the corner of Ayala Avenue and Paseo de Roxas in Makati City in 2019. 4

Recognizing the potential of virtual assets to revolutionalize the delivery of financial services both domestically and internationally, this year, the BSP issued Circular No. 1108, series of 2021 (“BSP Circular No. 1108”). BSP Circular No. 1108 defines “virtual asset” as any type of digital unit that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets are considered as “properties”, “proceeds”, “funds”, “funds or other assets”, and other “corresponding value” that can be used as a medium of exchange or a form of digitally stored value. 5 The definition of virtual assets excludes digital units that are used for (i) the payment of goods and services soIely provided by its issuer or a limited set of merchants specified by its issuer (e.g. gift checks); or (ii) the payment of virtual- goods and services within an online game (e.g. gaming tokens).6

Regulation of Virtual Asset Service Providers

BSP Circular No. 1008 regulates Virtual Asset Service Providers (“VASP”) which refer to entities that offer services or engage in activities that provide facility for the transfer or exchange of virtual assets which involve the conduct of one or more of the following activities:7

  1. Exchange between virtual assets and fiat currencies;
  2. Exchange between one or more forms of virtual assets;
  3. Transfer of virtual assets; and
  4. Safekeeping and/or administration of virtual assetsor instruments enabling control over virtual assets.

Previouly, under BSP Circular No. 944, entities which are regulated are VCEs, which are entities that offer services or engage in activities that provide facility for the conversion or exchange of fiat currency to virtual currency or vice versa. 8 The definition of VASP under BSP Circular No. 1008 has expanded the coverage of regulated activities for entities which are dealing with virtual assets.

The term “Virtual Asset Service Provider” is not an original term coined by the BSP. In fact, in the 2018 Implementing Rules and Regulations of Republic Act No. 9160 (or the “Anti Money Laundering Act”), as amended defines the term “Virtual Asset Provider” as any person who, as a business, conducts one or more of the following activities or operations for or on behalf of another person:

  1. Exchange between virtual assets and fiat currencies;
  2. Exchange between one or more forms of virtual assets;
  3. Transfer of virtual assets;
  4. Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
  5. Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

Notably, the definition of VASP under BSP Circular No. 1108 does not cover businesses involved in the participation and provision of financial services related to an issuer’s offer and/or sale of a virtual asset. BSP Circular No. 1108 expressly provides that the said business activity falls squarely within the jurisdiction of the Securities and Exchange Commission (“SEC”).9 The offering and/or sale of virtual assets may be considered as offer, sale or distribution of securities in the Phillpines under Republic Act No. 8799 or the “Securities Regulation Code”.

Further, entities solely acting on their own behalf (i.e. not engaged in the business of actively facilitating virtual-asset-related activities for the account of others) are likewise not covered by the definition of VASPs.10 

Registration Requirements

Under BSP Circular No. 1108, an entity which falls under the definition of VASP is required to secure a Certificate of Authority (“COA”) as a Money Service Business (“MSB”) pursuant Section 901-N of the Manual of Regulations for Non-Banks (“MORNBFI”).

In addition, a VASP is required to have the following minimum paid-in capital: 

VASPs are also required to ensure that it has complied with the following rules and regulations, among others, under the MORNBFI:

  1. Technology Outsourcing;
  2. Liquidity Risk Management; 
  3. Operational Risk Management;
  4. IT Risk Management;
  5. Business Continuity Management;
  6. Internal Controls;
  7. Anti-Money Laundering;
  8. Financial Consumer Protection; and
  9. Sound Corporate Governance Principles.

Transactions of VASPS Under BSP Circular 1108, VASPs are only allowed engage in transactions with other VASPs, financial institutions and/or remittance and transfer companies that are duly authorized and licensed with the appropriate regulatoy authorities. The transfer of virtual assets between VASPs and other BSPsupervised financial institutions (“BSFIs”) shall also be considered as cross-border wire transfers. In addition, the transactions must comply with the pertinent rules on wire transers under the MORNBFI.11

Further, a VASP that transfers virtual assets amounting to Fifty Thousand Pesos (PhP 50,000.00) or more, or its equivalent in foreign currency, is required to obtain, hold and transmit the required information on both the originator and beneficiary to the beneficiairy institution. Simailarly, the beneficiary institution is required to obtain and hold the required information. The required information that should be collected by VASPs are as follows:12

  1. originator's name (i.e. the sending customer);
  2. originator's account number used to process the transaction (e.g. virtual asset wallet);
  3. originator’s physical (geographical) address, or national identity number, or customer identification number that uniquely identifies the originator to the ordering institution, or date and place of birth;
  4. beneficiary's name; and
  5. beneficiary account number where such an account is used to process the transaction (e.g. virtual asset wallet).

For large value pay-outs of more than Five Hundred Thousand Pesos (PhP 500,000.00) or more, or its equivalent in foreign currency, in any single transaction with customers or counterparties, the same shall only be made via check payment, or direct credit to deposit accounts, or account to account transfer using electronic fund transfer facilities.13

Notification and Reporting Requirements

In addition to the notification and reporting requirements for MSBs under Section 901-N of the BSP MORNBFI, a VASP is required to submit the following documents to the BSP:14