The Philippines Central Bank approves new bitcoin exchange regulation

The Philippine Central Bank recently approved new rules and regulations governing the operation of virtual currency exchanges. Bangko Sentral ng Pilipinas (BSP) defines virtual currency (VC) as, “any type of digital unit that is used as a medium of exchange or a form of digitally stored value created by agreement within the community of VC users.”

The Bangko Sentral recognizes that Virtual Currency systems have “the potential to revolutionize” the delivery of financial services, “particularly for payments and remittance, in view of their ability to provide faster and more economical transfer of funds, both domestic and international, and may further support financial inclusion.” However, the bank does not intend to endorse any VC, “such as bitcoin,” as a currency, “since it is neither issued or guaranteed by a central bank nor backed by any commodity.”

“VCs shall be broadly construed to include digital units of exchange that (1) have a centralized repository or administrator; (2) are decentralized and have no centralized repository or administrator; or (3) may be created or obtained by computing or manufacturing effort.” - Bangko Sentral ng Pilipinas

The BSP aims to regulate VCs when used for delivery of financial services, and in particular for payments and remittances, “which have material impact on anti-money laundering (AML) and combating the financing of terrorism (CFT), consumer protection and financial stability.”

The new guidelines cover VC exchanges offering services, or engaging in activities, that convert or exchange fiat currency to VC or vice versa. “Once fiat currency is exchanged or converted into VC, it becomes easily transferrable, facilitating expedient movement or transfer of funds and payment services, among others,” states the central bank. “In this manner, they are considered similar to remittance and transfer companies.

The new rules and regulations will go into effect on February 21, at which point all VC exchanges must obtain a Certificate of Registration (COR). Application incur a one-time registration fee and an ongoing annual service fee, both of which will cost about US$2,000, far less than the money transmitter licenses required throughout most US states.

Deputy Governor of the Central Bank Nestor A. Espenilla Jr. first mentioned the upcoming regulations on Jan 30th, and the reason why they were needed. “Volume is growing,” he explained. “You cannot ignore it anymore because it’s a growing channel. In the overall scheme of things, it’s not yet that big but it has a potential to grow.”

“The volume grew $5 to $6 million a month compared to $2 to $3 million the previous year. It doubled. There was an acceleration. Based on that, we decided to put this on a formal regulatory framework.” - Central Bank Governor Nestor A. Espenilla Jr.

Many social and technological indications show that the Philippines is an ideal market for Bitcoin, including a lagging banking infrastructure coupled with high smartphone adoption rates. However, despite the environment, Bitcoin’s primary reason for the strong growth in the Philippines has remained the popularity of using it as a backbone for remittance services.

The Philippines has been a global leader in bitcoin remittance since 2013, when payment service Coins.ph and the Satoshi Citadel Industries (SCI) owned Rebit began competing in the popular local remittance market. The peer-to-peer market Localbitcoins has also had a large and growing trade volume,

Late last year Luis Buenaventura, the CEO of Bitcoin software remittance company Bloom Solutions and a past Vice President of SCI claimed that 20 percent of the remittance corridor between the Philippines and South Korea was already using Bitcoin as a backbone to their remittance services. However, the CEO states that, “the Philippines is a huge destination for bitcoins and yet does not have any significant exchanges.”

“Due to the lack of liquidity in young markets like the Philippines, there is often no way to sell all of the incoming BTC without taking losses.” - Luis Buenaventura, CEO Bloom Solutions

His interpretation of the new regulations is hopeful but cautious. “It’s good news that the government is finally recognizing that we exist and acknowledge that our efforts do have a positive social impact on our country,” he said on Tuesday. “I hope that it won’t put the brakes on the innovative momentum that has been building up over the past few years. We’ve been making a lot of progress since 2013, but there’s still a ton more work to be done.”