BSP moves to tighten cryptocurrency regulations to boost industry, market

MOVES BY THE central bank to tighten regulations for virtual asset service providers will help increase consumer confidence so the local cryptocurrency market can grow further, an industry player said.

“I actually do think that one of the things that perhaps may have inspired mistrust in the cryptocurrency market to begin with is the lack of regulation,” Philippine Digital Asset Exchange (PDAX) Founder and Chief Executive Officer Nichel Gaba said in a briefing on Tuesday.

“So anything that increases oversight, anything that increases supervision and adherence to customer protection, anti-money laundering, and also platform security are good for the industry and should help the industry grow,” he added.

The Bangko Sentral ng Pilipinas (BSP) in January 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.

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 antimoney 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.

Last week, the BSP issued Memorandum No. 2021-013 which instructs virtual asset

service providers to implement strict risk-based Know-Your-Customer mechanisms to ensure dirty money or terrorism financing risks are mitigated.

PDAX users last week experienced an outage just as the cryptocurrency Bitcoin breached $50,000.

The incident caused the platform to go for a 36-hour “system check” which Mr. Gaba said was “necessary to protect them, the public, and the integrity of the market.”

“When we discovered that an unfunded order made it to the system, we took the exchange down to prevent that order from affecting other accounts,” Mr. Gaba said. He noted that they have already restored all accounts although withdrawals will still need to undergo manual process.

The platform saw its user base grow by 15 times and volume surge by 70 times in the past 11 months, Mr. Gaba said.

PDAX began retail operations in 2019 and is among the 17 remittance and transfer companies with virtual currency exchange services registered with the BSP.