Cryptocurrency License in Philippines: An Overview

The Cryptocurrency License in Philippines is also known in the Philippines as Virtual Asset Service Provider (VASP) License. The Philippines was one of the pioneering countries in the early regulation of virtual currencies back in 2017 with the issuance of a Certificate of Registration for Virtual Currency Exchange Services. With the growing popularity of virtual currencies not just in the Philippines but across the world, the government of the Philippines and the Central Bank of the Philippines i.e. Bangko Sentral ng Pilipinas (BSP), have taken proactive efforts in updating their regulatory and licensing framework in 2021 by introducing anti-money laundering regulations that are in consonance with the framework released by the Financial Action Task Force (FATF) and increased the coverage of the policy.  

Regulatory Framework for Cryptocurrency license in Philippines    

According to the new framework, the Filipino government has rebranded virtual currencies as virtual assets. This has been purposefully used to designate virtual currencies as virtual assets because the same term has been adopted by the FATF, and this reduces confusion between the two terms. Additionally, virtual assets is a more inclusive term as it covers a broader spectrum of financial products and services. Further, with the usage of this term, there is a potential that these virtual assets can be used as payments and investments in future.

Given the broad definition of virtual assets, BSP recognises both the benefits and risks associated with this system of virtual assets and has consequently taken steps to encourage innovation while ensuring the stability and integrity of the financial system. This is done by introducing not only the anti-money laundering regulations mentioned previously but also introducing terrorist financing and proliferation financing regulations. Further, measures have been taken to effectively manage other risks associated with the virtual assets system, such as privacy risks, information technology risks, investor protections and privacy policy.

By introducing these measures early on, the Filipino government has ensured that all the virtual asset service providers in the country and from foreign jurisdictions are provided with a certain, secured and well-defined regulatory framework in place, making the Philippines one of the most attractive destinations for the investors to base their cryptocurrency businesses in.

The regulatory framework has also provided clarity on the enforcement mechanism by prescribing monetary penalties and sanctions in case of violations committed by virtual asset service providers. Further, blatant violations, such as offering services without proper registration, may result in the disqualification of your company from subsequent registration.   

Regulatory Authorities for Cryptocurrency license in Philippines  

As previously mentioned, the Central Bank of the Philippines or commonly known as Bangko Sentral ng Pilipinas (BSP), is the regulatory authority for issuing licenses for virtual currency exchange providers. BSP has updated “Guidelines for Virtual Asset Service Providers”, recognising virtual assets and tightening the existing rules on virtual assets.

If you intend to obtain your cryptocurrency license in Philippines, speak to our Crypto business and Fintech Consultants at Enterslice.

Businesses that require Virtual Asset Services Provider License in the Philippines

In the Philippines, Virtual Asset Service Providers are those entities that are engaged in one of the following activities:

1. Businesses that exchange one or more forms of virtual assets
2. Businesses that exchange virtual assets with Fiat currencies
3. Businesses that are engaged in the activities of transfer of virtual assets
4. Businesses that provide management and/or custodian/ safekeeping services or offer tools facilitating the management of virtual assets. These businesses are called virtual assets custodians that are equivalent to cryptocurrency wallet providers in other nations such as the United Kingdom.

• It must be noted that those businesses that were operating under the previous virtual currency exchange license or were non-registered entities are required to re-apply to obtain a new Virtual Services Providers License. Furthermore, they are required to comply with all the applicable regulations. Failure to comply can result in heavy penalties. New virtual asset service providers are supposed to obtain the license before commencing their business operations that involve any of the above-mentioned activities.
• In case you are not sure whether your business falls within any one of the above-mentioned activities, then you can speak to crypto consultants at Enterslice.

Those businesses that are engaged in the above-mentioned activities are required to obtain the Virtual Asset Services Provider license in the Philippines.

Requirements for obtaining a Cryptocurrency license in Philippines   

In order to operate crypto exchange businesses in the Philippines, the following compliance regulations and guidelines need to be met and registration has to be done with the Bangko Sentral ng Pilipinas (BSP) in order to operate legally in the Philippines:

• Obtaining the Money Services Business Permit

All prospective virtual asset service provider licensees are required to obtain a Certificate of Authority for operating as a Money Services Business first and demonstrate compliance with the applicable rules and regulations.

The additional rules and regulations that have been prescribed by the BSP are required to be followed by the Virtual Asset Service Providers as follows:

1. Liquidity and Operational risk management
2. Outsourcing
3. Internal Control
4. Business continuity management
5. Financial Consumer protection
6. Anti-money laundering
7. IT risk management (vendor management program/ IT outsourcing)
8. Other general corporate rules and regulations that are applicable to the companies as part of corporate governance

• Minimum capital requirements and the applicable fee for registration

The virtual asset service providers offering custodian services, i.e. safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets, need to have a minimum capital requirement of Php 50 million (approx. $1.05 million). On the other hand, other virtual asset service provider companies need to have a minimum capital requirement of Php 10 million (approx. $0.21 million).

All the virtual asset service providers are required to pay a registration fee of Php 100,000 (approximately $2,100). Subsequently, they are also required to pay an annual service fee of Php 300,000 (approx. $6,300). The fee is the same for both the VASPs offering custodian services and their regular services.

• Due diligence checks on the customers

The law makes it mandatory for all virtual asset service providers to conduct due diligence on both their one-time and regular customers. Here, the one-time customers will only be subject to due diligence if the combined value of their linked transactions exceeds the value of Php 5,000 (approx. $105). The virtual asset service providers should also initiate a due diligence search when the company suspects money laundering and terrorist financing activities or they suspect the completeness or authenticity of the previous checks.

• Reporting requirements and Internal controls

The company has to ensure that the Annual Financial Statements audited by the external auditor are submitted not later than 120 days after the closing of the reference year. The company is also required to make a quarterly certified submission of the total volume and total value of the virtual assets transacted, along with the list of operating offices and websites, within a period of 10 working days after the end of the referenced quarter.

The companies are also required to install internal control systems and solutions depending on the size, nature and complexity of the company, and these internal controls should be enforced by qualified personnel. This extends to ensuring that the board of directors and other key personnel who are supervising the critical functions such as compliance, audit, information security and anti-money laundering are managed by fit and capable candidates according to the standard corporate governance procedures.  

• Consumer Protection

It is incumbent on the virtual asset service providers to ensure that their customers are aware of how to secure their personal data and how to use the company’s platforms in a secure manner. It is also the virtual asset service providers’ duty to bring to the notice of the customers the applicable fee and charges for using their platform and also make them aware of the material risks associated with the virtual assets. Further, they also need to explain the terms and conditions on how the losses arising as a result of system failure and human errors will be settled. They must also clarify the procedure for handling customer complaints and the dispute resolution process.

• Additional Requirements in case of high-value transactions

It is mandatory that additional information associated with all the transactions associated with virtual assets worth more than Php 50,000 (approx. $1,050) should be tracked and transmitted to both the originating party and the beneficiary party along with the transaction. This helps both parties to ensure that details of the transaction are accurate and can be made available to the authorities when required. 

The additional information that needs to be recorded from the transaction includes the following:

1. Full name of the originating and beneficiary parties
2. The account number of the originating and beneficiary parties
3. Personal identification Documents of the originator which includes

• Address proof
• National identity number
• Date and place of birth
• Customer identification number that clearly identifies the originator

The virtual asset service providers should ensure that the transmission of this information takes immediately and securely and necessary efforts are taken to ensure that the information remains confidential and no unauthorised disclosure takes place.

Big transactions worth Php 500,000 ($10,500) and beyond should be subject to stricter due diligence checks, and the mode of these transactions can be either cheques, account-to-account transfers or through direct credit.

• Wallet security

The virtual asset service providers that offer custodian services where they hold virtual or fiat currencies should have properly integrated cybersecurity and security frameworks along with controls in place that ensure confidentiality, integrity and availability of data that is being stored, uploaded, processed and transmitted using their system as a medium. Additionally, these systems should be protected against cyber-attacks and malware.

• Additional Requirements

It is often emphasised that virtual asset service providers should take adequate care in the selection of other virtual asset service providers and virtual assets they deal in. The virtual asset service providers must ensure that the other virtual asset service providers are properly licensed and accredited and that the fraud risk management systems have been integrated into the system.

The virtual asset service providers having fiat currency wallets are required to maintain sufficient liquidity in their accounts so that virtual asset redemptions take place smoothly. These providers are also required to maintain a record of all the transactions or receipts of fiat money.

Those virtual asset service providers that are offering services of custodians are required to maintain a similar record-keeping system so that commingling does not take place between their proprietary virtual assets and their customers’ virtual assets. They should hold reserves in their account that are equivalent to the number of virtual assets in their custody.

Where the virtual asset service providers outsource their functions, the services shall be deemed to be done by them directly. This means that they only will be held liable for all the risks associated with the outsourcing, and therefore, it is advised that these providers should ensure proper risk management to mitigate these risks before outsourcing these functions.

The virtual asset service providers are required to comply with all the applicable rules and requests for information both from the BSP and from other regulatory governing bodies.

Procedure for Obtaining a Cryptocurrency license in Philippines

Virtual asset service providers need to follow the following 3 simple steps to obtain a cryptocurrency license in Philippines. The application can be made online, via online portal or via mail also.   

Step 1 – Making an application for BSP approval to establish and operate a Money Service Business

The following Documents are required for making an application to BSP:

• Application Letter signed by the authorised representative of the company along with the required details
• License type for which the application has been made
• Articles of Association
• Business Plan of the company containing the following details:

1. The purpose of doing the business
2. Organisational structure and the type of corporate entity

• Platform/facility features and products and services on offer

1. Details of the source of funding and the capital requirements of the company
2. Target market (i.e. the number of customers) and the network of offices
3. An estimate of the annual volume of transactions over a period of 3 years

• Dispute resolutions solutions and the customer complaint process
• Operational workflow right from the opening of an account to anti-money laundering process, from transaction initiation to fulfilment and settlement process

1. Details of the IT infrastructure in place
2. Proposed transaction fee

• The application should contain the list of owners, directors, principal officers and controlling shareholders, along with the following information about them:

1. Name and birth date
2. Designation

• Address

1. Citizenship
2. Percentage of ownership and amount contributed to the company
3. Taxpayer ID

• Email address and contact number
• The board members and some of the key members have to

1. Complete the Personal Data and Authorisation Form, FSS licensing form and also submit a security clearance
2. Submit proof of their financial standing by furnishing either their bank statements or the latest audited balance sheet

• Payment proof of registration and filing fee

1. Proof of registration with the Anti-money laundering Council Secretariat
2. Information regarding the processes of the company can also be sought with the following details:
3. Terms and conditions
4. User and system manual

• Business continuity plan

1. Contracts between the company and the outsourcing partner
2. Due diligence, KYC procedures and policies related to risk management
3. A walkthrough of the system

• Apart from the above-mentioned Documents, the applicant has to pay filing fees for a non-refundable amount of Php 1,000 (approx. $21) post which the application moves towards the stage of provisional assessment and processing
• The virtual asset service provider is then supposed to provide their business plan and present a walkthrough of their system. Enterslice will assist your company in the preparation of this business plan and prepare your executives for the interview. Assistance will also be provided for the preparation of the Articles of Incorporation.
• The BSP then takes a time of 20 days to process and evaluate the application. After giving its approval, the application moves to the next stage and the company is permitted to operate as an MSB. An email and a physical copy of the letter are provided to the applicant.

Step 2 – Application for obtaining Letter of No Objection for registration with the BSP and Articles of Incorporation indicating its purpose to operate as an MSB operator

The following Documents are required:

• An email notification spelling that your company proceeds towards Stage 2
• Proof of compliance as an MSB
• An application letter for issuance of a No Objection Letter. It must be noted that the BSP reference number should be indicated on the letter

Only after these Documents have been attached in the application, the application is sent for processing for stage 2. This second stage of processing shall take a period of 7 days to be reviewed and evaluated. After receiving the approval, an email, along with an original copy of the letter, is sent to the applicant.

Stage 3 – Application for Issuing Certificate of Authority to Establish and Operate a Money Service Business

The following Documents are required for the processing of an application for stage 3:

• An email notification spelling that your company proceeds towards Stage 3
• A notarised application for authority to establish and operate an MSB and FSS Licensing Form No. 03-001
• A proof that the company has conducted AML/CTF training

The last and final step of the application takes approximately a time period of 13 working days after the submission of the necessary Documents. It is also mandatory for the company to submit proof of payment of the fee.

Finally, your company shall receive an email and a physical letter confirming that your company can commence virtual asset services.  

Duration for obtaining a cryptocurrency license in Philippines

All the applications for obtaining a cryptocurrency license in Philippines are individually reviewed by the BSP to ensure that all the required information has been furnished in the application. The standard processing timeline provided by the BSP for the processing of an application is of 40 days from the date of making the application. However, BSP does not mention a few other steps that are involved in the application examination process.

On the safer side, it can be said that BSP takes around 2 months time for examining the application. However, if BSP finds any deficiencies in the application or finds the information to be incorrect, inconsistent or incomplete, they can revert to the applicant seeking clarification which can significantly delay the process of obtaining the cryptocurrency license.

Enterslice is an international consulting firm offering Crypto business advisory services across the globe.