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I. Definition of VC
VCs are not issued nor guaranteed by any jurisdiction and do not have legal tender
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status. The Circular provides that “[t]he Bangko Sentral 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.” The purpose of the Circular is merely “to regulate
VCs when used for delivery of financial services, particularly, 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.”5
*
Juris Doctor, University of the Philippines – College of Law.
1
BSP is the central monetary authority in the Philippines.
2
Subsection 4512N.2(a), MORNBFI.
3
Subsection 4512N.2(a), MORNBFI.
4
Subsection 4512N.2(a), MORNBFI.
5
Section 4512N, MORNBFI.
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II. Definition of VC Exchange
The Circular defines a VC Exchange as “any entity that offers services or engages
in activities that provide facility for the conversion or exchange of fiat currency to VC or
vice versa.”6 It also defines VC Exchange Service as the “conversion or exchange of fiat
currency or other value into VC, or the conversion or exchange of VC into fiat currency or
other value.”7 Fiat currency refers to “government-issued currency that is designated as
legal tender in its country of issuance through government decree, regulation, or law.”8
The BSP recognizes the similarity between VC Exchanges and Remittance and
Transfer Companies (“RTC”). This is because “once fiat currency is exchanged or
converted into VC, it becomes easily transferrable, facilitating expedient movement or
transfer of funds and payment services[.]”9
RTCs are entities that provide money or value transfer services (“MVTS”). They
are regulated by Republic Act (“R.A.”) No. 9160 (Anti-Money Laundering Act of 2001, or
“AMLA”) as amended, its Revised lmplementing Rules and Regulations (“RIRR”), and
other related implementing regulations issued by the BSP. Duly registered VC Exchanges
may perform other MVTS, but duly registered RTCs may not engage in VC Exchange
Services unless registered as an RTC operating as a VC Exchange.10
A. Certificate of Operation
VCs must be registered with the BSP before operation. Registration constitutes a
2-stage process. The first stage is a preliminary screening process for BSP to determine
if the applicant is eligible for registration. The new applicant shall submit the following for
evaluation: (i) Application letter; (ii) Business plan, including target market; and (iii) List of
owners/controlling shareholders, directors, and principal officers.
In the second stage, the eligible applicant is invited to submit supporting
documents to complete the registration process, as follows:
6
Subsection 4512N.2(f), MORNBFI.
7
Subsection 4512N.2(b), MORNBFI.
8
Subsection 4512N.2(c), MORNBFI.
9
Subsection 4512N.1, MORNBFI.
10
Subsection 4512N.1, MORNBFI.
11
Subsection 4512N.3, MORNBFI, adopting Subsections 4511N.2 and 4511N.8, MORNBFI, and Appendix
N-8-a, to VC Exchanges.
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(for single proprietorship); or proof of registration with the Cooperative
Development Authority (for cooperative);
Upon approval, the BSP will issue a Certificate of Registration (“COR”) to the
applicant, which shall commence operation within 3 months from the date of issuance of
the COR.
Grounds for denial of Application for Registration are: (i) failure to provide the
complete required documents, and (ii) any of the prospective VC Exchange’s proprietors,
or any of its partners, directors, or principal officers, as applicable, is not fit and proper. In
determining whether a person is fit and proper, regard shall be given to: (i) integrity or
probity, (ii) market reputation, (iii) competence, and (iv) financial capacity.
B. Minimum Capital
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for registration, the VC Exchange registrant is required to submit a duly notarized
certification from the proprietor, managing partner, or president, as to compliance with the
said capital.
Duly registered VC Exchanges may accredit their own agents. An agent shall be
treated as an extension of the VC Exchange and shall be subject to the same obligations
of a VC Exchange under the MORNBFI (as amended by the Circular) and under the Deed
of Undertaking executed by the VC Exchange applicant. The VC Exchange shall ensure
that it conducts appropriate due diligence in the accreditation and shall provide effective
continuing oversights of its agents.
E. Mandatory Training
All proprietors, partners, directors, officers, and other personnel directly involved
in VC Exchange Services shall attend a BSP- or AMLC-accredited seminar before start
of operations, on the requirements of the AMLA, as amended, particularly on customer
due diligence, reporting of covered and suspicious transactions, and record-keeping.
Refresher training shall likewise be conducted at least every 2 years.
The registration fee is P100,000 for Large-Scale Operators and P20,000 for Small-
Scale Operators. A non-refundable P1,000 shall also be paid for each office other than
the head office. VC Exchanges shall also pay, not later than March of every year,
commencing in 2018, an annual service fee of P100,000 for Large-Scale Operators and
P20,000 for Small-Scale Operators.
A. Transactional Requirements
Large value pay-outs of more than P500,000 (or its foreign currency equivalent) in
any single transaction with customers or counterparties, shall only be made through
check payment or direct credit to deposit accounts.12
12
Subsection 4512N.5, MORNBFI.
4
B. Technology Risk Management and Internal Control
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f. Closure of business. – The VC Exchange shall notify within five business
days from the actual date of closure and shall submit the following
documents:
a. COR from the Department of Trade and Industry (DTI), Securities and
Exchange Commission (SEC) or Cooperative Development Authority
(CDA), as the case may be, indicating the new business/registered name;
and
The BSP shall issue a new COR indicating the new registered/business name of
the VC Exchange.
The VC Exchange shall obtain prior approval from the BSP for any change in:
ownership of a sole proprietorship or partnership, or control of a corporation. Control shall
refer to any transaction involving voting shares of stock of a VC Exchange that will result
in ownership or control of at least 20% of voting shares of stock of the VC Exchange by
any person, whether natural or juridical, or which will enable such person to elect, or be
elected as, a director of such VC Exchange. The VC Exchange shall submit the names
of its proposed new owner/s or controlling shareholder for evaluation. Failure to seek prior
approval may result in cancellation of registration.
The VC Exchange shall also maintain records and submit the following reports to
the SES: (i) Annual Audited Financial Statements, not later than the 30th of June following
the reference calendar year; (ii) Quarterly Report on Total Volume and Value of VCs
transacted, within 10 business days from end of reference quarter; and (iii) Quarterly list
of operating offices and websites, within 10 business days from end of reference quarter.
The last two requirements must be duly certified by the proprietor, managing partner,
president, or any officer of equivalent rank.
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V. Sanctions
Operating without prior BSP registration shall warrant: (i) disqualification from
registration, and (ii) fine of not less than P50,000 nor more than P200,000, or by
imprisonment of not less than two years nor more than 10 years, or both, at the discretion
of the court. Violation of any provisions of the AMLA, as amended, and its RIRR, shall
warrant: (i) cancellation of registration, (ii) applicable penalties prescribed under AMLA,
(iii) disqualification from holding any position in any BSP-supervised or -regulated
institution, or (iv) written reprimand. Erroneous, delayed, or unsubmitted reports, and
violation of any provisions or requirements of the Circular, shall warrant: (i) cancellation
of registration, and (ii) monetary penalties.16
To date, the Bureau of Internal Revenue (“BIR”) has not yet issued any revenue
regulation, memorandum circular, or ruling on the taxation of VCs. It must be noted,
however, that if VCs are considered personal properties, then VC Exchange transactions
may result in income taxes, transfer taxes, and value-added taxes (“VAT”), as follows:
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2. Transfer tax. – Donation of VCs may be subject to a donor’s tax of 6%
of net donations in a year, amounting to more than P250,000 and
regardless of the donor’s relationship to the donee. On the other hand,
acquisition of VCs by way of inheritance may be subject to an estate tax
of 6% of net value of the estate.19
3. VAT. – Since there appears to be no VAT exemption for VCs, the sale
of VCs in the regular course of business by a VAT-registered enterprise
meeting the P3 million VAT threshold may be subject to 12% of gross
sales and receipts.20
Securities include “investment contracts”.21 The SC has adopted the Howey Test
in determining whether an agreement constitute an investment contract, as follows:
19
See Sections 84 and 99, Tax Code, as amended by R.A. No. 10963 (Tax Reform for Acceleration and
Inclusion or “TRAIN”).
20
See Sections 105, 106, and 108, Tax Code, as amended by TRAIN.
21
Section 3.1(b), SRC.
22
SEC v. Prosperity.com, Inc., G.R. No. 164197, January 25, 2012.
23
See Sections 8, 54, 57, and 73, SRC.
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D. Validity of Bitcoin Futures
Bitcoin futures are futures contracts, with bitcoins as the underlying asset. The
SRC provides that “[n]o person shall offer, sell or enter into commodity futures contracts
except in accordance with the rules, regulations and orders the [SEC] may prescribe in
the public interest. The [SEC] shall promulgate rules and regulations involving commodity
futures contracts to protect investors to ensure the development of a fair and transparent
commodities market.”24 To date, the SEC has not promulgated rules and regulations
allowing the trading of commodity futures contracts. Accordingly, such activities remain
prohibited under the SRC.
24
Section 11, SRC.