The Philippine Securities and Exchange Commission (SEC) has released a draft of the “SEC Rules on Crypto Asset Service Providers” (CASP)with the aim of establishing a solid regulatory framework for entities that offer services related to cryptocurrencies.
What is the meaning? The SEC is seeking public comments on the proposed rules by January 18, 2025.
Below is BitPinas’ summary and key takeaways from the SEC’s draft rules on cryptoasset service providers:
Key Highlights of SEC Draft Rules for Crypto Asset Service Providers
Coverage and Applicability
The rules will apply to all entities offering cryptoasset services in the Philippines or affecting its markets.
Registration requirements
All CASPs must obtain a license before operating in the Philippines.
Minimum qualifications include:
- Constitution as a corporation registered with the SEC.
- At least four local staff.
- Compliance with capital requirements established by the SEC.
Applications must demonstrate the ability to comply with current regulatory obligations.
The SEC has the authority to modify requirements and impose a moratorium on licensing.
Public Offering of Crypto Assets
Public offerings must comply with extensive disclosure requirements, including:
- Detailed information about the issuer and the crypto asset.
- Risks, obligations and key characteristics of the asset.
- Technical details about the underlying blockchain or protocol.
Mandatory warnings include:
- The crypto asset can lose value completely.
- It may not be liquid or transferable.
There are exemptions for:
- Free distributions (airdrops).
- Rewards for blockchain maintenance or transaction validation.
- Tokens used exclusively within a closed network of merchants.
Public Offering of Crypto Asset Securities
Crypto Assets They are classified as securities if they meet the definition of the Securities Regulation Code (SRC).
- Requires a registration statement filed and approved by the SEC.
- It includes initial coin offerings (ICOs) that function as securities.
Admission to Negotiation
Trade on exchanges or platforms must meet the requirements of the previous sections.
Cryptoasset service providers are prohibited from:
The SEC will have the power to order the withdrawal of a crypto asset on a crypto asset exchange, in the interest of investor protection.
SEC Draft Rules
Marketing and Promotion
Marketing is broadly defined to include social media, events, paid media, and educational content.
Unauthorized entities are prohibited from promoting crypto assets.
Marketing materials should:
- Use simple and clear language.
- Accurately disclose risks without being misleading.
CASPs are responsible for compliance with the rules by their agents and third-party marketers.
SEC AML Compliance
CASPs are “covered persons” under the Anti-Money Laundering Act (AMLA).
The draft rules mandate compliance with AML, Counter Financing of Terrorism (CFT) and Counter Proliferation Financing (CPF) laws.
Continuing obligations of CASPs
CASPs must:
- Maintain systems to detect and report market abuses.
- Implement surveillance and cybersecurity measures.
- Conduct annual effectiveness reviews of your systems, especially after launching new activities.
Prohibition of market manipulation, insider trading and unlawful disclosure
Prohibited activities include:
- Artificially inflate or deflate prices (e.g., wash trading, paint tape).
- Share material non-public information to obtain commercial advantages.
CASPs must maintain lists of inside information and ensure that employees do not misuse confidential information.
Adoption of a cybersecurity framework
CASPs must adopt cybersecurity measures aligned with the National Cybersecurity Plan and global best practices.
CASPs must ensure compliance with cybersecurity guidelines issued by the SEC.
Audit and review
The SEC will conduct audits of CASPs to evaluate compliance with rules, cybersecurity measures, and risk management systems.
SEC Enforcement Power
The SEC can:
- Investigate violations and impose fines or suspensions.
- Issue cease and desist orders for fraudulent or harmful practices.
- Revoke licenses after due process if violations persist.
Confidentiality is maintained for investigations until formal action is taken.
Reasons for license suspension or revocation
The land includes:
- Misrepresentation or false statements in applications or disclosures.
- Break the rules or address violations.
- Fraudulent activities or unauthorized operations.
The SEC had outlined the suspension or revocation process, including hearings. The Commission said the suspensions will initially be confidential unless violations continue.
Liability, administrative sanctions and settlement offers
- CASPs are responsible for the misconduct of their employees and agents.
- Fines range from $50,000 to $10 million, with additional penalties for continued violations.
- Settlement offers may be accepted if they serve the public interest.
Sanctions and Applicability of Laws
Violations may result in:
- Prison (1 to 5 years).
- Fines (₱50,000 – ₱2 million).
- Both sanctions for individuals and responsible corporate officers.
- These rules supplement the SRC, FCPA, and other SEC regulations where applicable.
- If any rule is invalidated, the remaining provisions will continue to apply.
What’s next?
- The SEC is soliciting comments from interested parties until January 18, 2025.
- Comments can be emailed to [email protected] or by physical mail to your Makati office.
This article is published on BitPinas: Key Takeaways: SEC Draft Rules for Crypto Asset Service Providers in the Philippines
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