Philippines SEC issues new rules on crypto to protect the public

At the heart of the new regulations is the requirement that all CASPs operating in the Philippines must register with the SEC as domestic corporations. This move compels both local and foreign entities targeting Filipino users to establish a legal presence within the country, thereby subjecting them to Philippine jurisdiction and oversight. The registration process is rigorous, demanding a minimum paid-up capital of ₱100 million (approximately $1.8 million) in cash or property, explicitly excluding crypto assets themselves. This substantial capital requirement is intended to ensure that only well-capitalized and stable firms enter the market, reducing the risk of fly-by-night operators and bolstering consumer confidence in the sector.

CASPs are also mandated to maintain physical office locations in the Philippines, which must be appropriately staffed during regular business hours. This requirement not only facilitates regulatory supervision but also ensures that customers have a tangible point of contact for addressing grievances or seeking assistance, further enhancing accountability. In addition to incorporation and physical presence, CASPs must submit comprehensive documentation, including business conduct rules, risk control plans, IT and communication systems designs, and client onboarding procedures. These documents are scrutinized by the SEC to assess the robustness of each applicant’s operational framework and risk management capabilities.

A cornerstone of the new regulatory regime is the emphasis on transparency and disclosure. Before any crypto asset can be sold or offered to the public, it must be registered with the SEC, accompanied by detailed disclosures about the asset’s risks, underlying technology, and the identities of key individuals involved in its issuance or management. This disclosure obligation extends to the marketing of crypto assets, which is now tightly regulated to prevent misleading promotions and ensure that potential investors are fully informed of the risks they are undertaking. The SEC has also clarified that educational content about crypto assets, if created in good faith and for purely educational purposes, will not be classified as marketing, thereby safeguarding the freedom to disseminate neutral information.

Operationally, CASPs are required to segregate customer assets from their own corporate holdings, a measure designed to protect client funds in the event of insolvency or mismanagement. Regular reporting to both the SEC and the Anti-Money Laundering Council is mandated, encompassing data such as the number of active users, daily trading volumes, and details of all trades executed on the platform. These reports facilitate ongoing regulatory oversight and help authorities detect suspicious activities, thereby strengthening the country’s defenses against money laundering and other financial crimes.

The SEC’s new rules also introduce a graduated penalty system for noncompliance, with fines escalating for repeated violations and the possibility of license suspension or revocation for serious breaches. In cases of willful misconduct, individuals or entities may face imprisonment of up to five years or fines reaching ₱10 million. These enforcement provisions underscore the SEC’s commitment to maintaining a fair and transparent market while deterring fraudulent or reckless behavior.

While these regulations are lauded for their potential to protect investors and enhance market stability, they have also sparked concerns about their impact on smaller players in the crypto industry. The high capital and operational thresholds may discourage startups and innovative but less-capitalized firms from entering the market, potentially stifling competition and innovation. However, the SEC has indicated that mechanisms exist for smaller companies to apply, suggesting some flexibility in implementation.