THE Securities and Exchange Commission (SEC) plans to require the registration of cryptocurrency asset service providers to boost investor protection.
Under draft rules issued on Dec. 20, applicants must be a SEC-registered stock corporation, have at least four staff members living in the Philippines and meet the minimum capital requirements.
The corporate regulator also proposed that crypto asset securities must not be sold without an approved registration statement.
“The SEC shall have the power to order the removal of a crypto asset in a crypto asset exchange in the interest of investor protection,” according to the draft rules.
“Unless allowed by the commission, crypto asset service providers should not conduct any offering, trading, or dealing activities of futures contracts or related derivatives involving crypto assets, as well as offer margin trading,” it added.
The SEC defines a crypto asset as a “cryptographically secured digital representation of a value or right that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions that can be transferred, stored, or traded electronically.”
“The Philippines is experiencing a widespread adoption of crypto assets,” the SEC said. “According to various studies, the Philippines ranks high in cryptocurrency adoption compared with other jurisdictions. This new class of assets has various characteristics and use cases, one of which is as an investment product.”
Under the SEC draft rules, service providers must be able to prevent and detect market abuse. The rules prohibit market manipulation, insider trading and disclosure of material and nonpublic information.
The draft rules also empower the SEC to stop illegal acts of service providers and revoke their licenses.
“In alignment with international standards, the SEC is establishing an affirmative legal framework to provide protection against consumer harms and systemic risks and to afford consumers the choice of engaging in crypto asset activity with licensed and authorized intermediaries,” the SEC said.
“The continued growth and development of new crypto-asset markets, services and business models rely on clear, proportionate and robust regulatory frameworks, which can ensure that markets are fair, efficient, and transparent,” it added.
Service providers must adopt a cybersecurity framework in line with the most recent iteration of the government’s national cybersecurity plan and other global best practices. They will also be subject to audit and review.
“Consistent with the objectives of the Philippine Development Plan 2023-2028, rapid technological advancements and evolving market needs have spurred the development and adoption of innovative financial products and services,” the SEC said.
The Securities Regulation Code mandates the corporate regulator to encourage market competitiveness by enforcing licensing and registration rules of other trading markets including “innovative securities and technology-based ventures.”
The Financial Products and Services Consumer Protection Act also empowers the SEC to formulate rules and standards for specific financial products or services.
In April, the SEC requested the removal of Binance from the app markets of Apple and Google in the Philippines for operating in the country without a license.
Binance claims to be the largest cryptocurrency exchange in terms of trading volume.
A survey by blockchain software company Consensys earlier this month showed that 96% of Filipino respondents said they were familiar with cryptocurrencies.
However, only 46% said they fully understood how cryptocurrencies work. The survey talked to 18,000 people aged 18-65 in 18 countries, including the Philippines.
Comments on the draft rules may be submitted until Jan. 18, 2025, the SEC said. — Revin Mikhael D. Ochave
