“A VC exchange is covered by the Know-Your-Customer or KYC Rules under the Anti-Money Laundering Regulations of BSP.

There is a growing number of virtual currency exchange operators in the Philippines.

The virtual currency is a type of digital “currency” created by a community of online users, is stored in electronic wallets and generally transacted online. The most common type of VC is “bitcoin.” VC is different from e-moneys like GCash and PayMaya – the latter is considered as a legal tender and is convertible to fiat currency in licensed e-money issuers or e-money agents ( www.bsp.gov.ph/downloads).

Before investing money in VCs or entering into a VC exchange business, it is best to first check the current rules of Bangko Sentral ng Pilipinas on the matter.

Under Subsection 4512N.1 of the Manual of Regulations of Non-Bank Financial Institutions or MORNBFI, VC is considered to be similar to remittance and transfer companies in the Anti-Money Laundering Act. As such, a VC exchange is also required obtain a Certificate of Registration to operate as a remittance and transfer company with BSP and is subject to several reporting requirements.

Moreover, a VC exchange is covered by the Know-Your-Customer or KYC Rules under the Anti-Money Laundering Regulations of BSP. Under Section 4802Q of MORNBFI, covered persons are those “banks, non-banks, QBs, trust entities, non-stock savings and loan associations, pawnshops, foreign exchange dealers, money changers, remittance and transfer companies, electronic money issuers and other financial institutions which under special laws are subject to Bangko Sentral supervision and/or regulation, including their subsidiaries and affiliates, which are also covered persons, wherever they may be located.”

Based on the foregoing, VC exchanges are required to conduct Customer Due Diligence/KYC in which a risk-based approach shall be undertaken depending on the type of customer, business relationship or nature of the product, transaction or activity. Specifically, the VC exchanges must have a system which ensures to do the following:

1) Identify the customer and verify his true identity based on official documents or other reliable, independent source documents, data or information.

2) Identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner.

3) Understand and, as appropriate, obtain information on the purpose and intended nature of the business relationship.

4) Conduct ongoing due diligence on the business relationship and transactions undertaken throughout the course of the relationship to ensure that the transactions being conducted are consistent with the VC exchange’s knowledge of the customer, their business and risk profile. (Section 4806Q of the Manual of Regulations for Non-Bank Financial Institutions).

This KYC shall be required in four instances:

1) When a business relations is established with any customer;

2) When an occasional but relevant business transaction was undertaken for any customer who has not otherwise established relations with the covered person;

3) When there is a suspicion of money laundering or terrorism financing, or

4) When there is doubt about the veracity or adequacy of previously obtained customer identification data.

It must be emphasized that based on the foregoing, the mere opening of an account or a single transaction/two or more transactions believed to be linked having an aggregate value exceeding P5,000 with the VC exchange shall require KYC.

“Understand and, as appropriate, obtain information on the purpose and intended nature of the business relationship.

If one would like to invest in VCs or to enter into a VC exchange business, he must then be prepared to comply with the BSP regulations, especially the KYC rules. The implementation of KYC procedures may in fact be complex, considering the comparably complex nature of virtual currencies. Lastly, considering the continuous growth of VCs worldwide, it is quite sure that more and more rules will be crafted to regulate the same. Play it smart but play by the rules. Otherwise, you may end up beaten in the virtual currency craze.

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