Key Takeaways: SEC Draft Rules for Crypto Asset Service Providers in the Philippines

The Securities and Exchange Commission (SEC) in the Philippines recently introduced the draft of the “SEC Rules on Crypto-Assets Service Providers” (CASP), with the aim of establishing a strong regulatory framework for businesses offering crypto-related services.

Why is this important? The SEC is inviting public input on the proposed rules until January 18, 2025.

Here are the key points from the SEC draft rules on crypto asset service providers:

Coverage and Applicability:

These rules will apply to all entities providing crypto-asset services in the Philippines or affecting its markets.
It recognizes the regulatory authority of other agencies (e.g., BSP for Virtual Asset Service Providers) in cases of overlapping activities.
Clarifies that these rules do not contradict broader financial regulations.

Registration Requirements:

All CASPs must obtain a license before operating in the Philippines.
Key requirements include incorporation as a stock corporation registered with the SEC, having at least four local staff members, and complying with capital requirements defined by the SEC.
Applications should demonstrate the capability to meet ongoing regulatory obligations.
The SEC can modify requirements and impose a licensing moratorium.

Public Offering of Crypto-Assets:

Public offerings must adhere to comprehensive disclosure requirements, providing detailed information about the issuer, the crypto-asset, risks, obligations, key features, and technical aspects of the underlying blockchain.
Mandatory warnings must be included regarding the potential loss of value or lack of liquidity.
Exemptions exist for certain distributions and tokens used within closed networks.

Public Offering of Crypto-Asset Securities:

Crypto assets meeting the definition of securities under the Securities Regulation Code (SRC) require a registration statement approved by the SEC.
This includes Initial Coin Offerings (ICOs) functioning as securities.

Admission to Trading:

Trades on exchanges or platforms must meet specific criteria.
CASPs are prohibited from supporting assets related to gambling or anonymity-focused features, as well as offering derivatives without SEC approval.
The SEC has the authority to order the removal of a crypto-asset from an exchange for investor protection.

Marketing and Promotion:

Marketing, including social media, events, and educational content, is under strict guidelines.
Unauthorized entities are prohibited from promoting crypto-assets.
Marketing materials should be clear, accurate, and disclose risks transparently.

SEC AML Rules Compliance:

CASPs are considered “covered persons” under the Anti-Money Laundering Act (AMLA) and must comply with AML, Countering the Financing of Terrorism (CFT), and Counter-Proliferation Financing (CPF) laws.

Continuing Obligations, Prohibition, Cybersecurity Framework, Audit, and Review:

CASPs must meet several continuing obligations, adhere to regulations on market manipulation, insider trading, and cybersecurity, and undergo audits by the SEC.
The SEC has enforcement authority to investigate violations and levy fines.

The draft rules encompass several critical aspects of regulating crypto-asset service providers in the Philippines, providing a framework for businesses operating in this sector.