Sandbox Regulation Allows Cryptocurrencies And Other Virtual Assets To Thrive And Develop

• Published date: 18 October 2021
• Subject Matter: Privacy, Technology, Privacy Protection, Fin Tech
• Law Firm: Ally Law
• Author: Angelo Patrick Advincula (ZG Law) and Ron Hortaleza (ZG Law)

Introduction

These last few years' leaps in technology have not spared the financial sector. The COVID pandemic only accelerated the pace. Fintech has given birth to Electronic-Money (e-Money) and Virtual Assets (VA's) which have proven to be more accessible and inclusive than traditional banking. The advent of Fintech has revolutionized the way money is transferred, exchanged, and invested.

The reason could be there are more people with mobile phones than bank accounts, according to the Central Bank of the Philippines (Bangko Sentral ng Pilipinas or "BSP").¹ Notably, many of those who don't have bank accounts, have E-Money or E-wallets and some have Virtual Assets. The BSP hopes that with digital financial inclusion, more and more of those who have never been open to traditional banking be given greater access to engage in the formal financial sector.

The Philippines is home to one of the longest quarantine periods in the world. Filipinos have been forced to play catch up quickly to the global revolution of most users/customers digitizing most of their daily financial transactions.

While E-Money has been around for quite some time in the Philippines, the phenomenon of cryptocurrency is just starting to creep into the consciousness of the Philippine public. And with the rise of users of both E-Money and those investing in cryptocurrency the profitability of endeavors in the financial industry is opening up a huge opportunity for investors, locally and abroad.

Philippine Central Bank uses the Regulatory Sandbox Approach

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the national government. The BSP has decided to take a proactive approach to FinTech players and actively engage them rather than regulate from a strict vantage point.

According to BSP Governor Benjamin Diokno, Fintech players have transformed the delivery of financial services by offering "far more convenient" ways of executing financial transactions. They have empowered the unbanked and underbanked to participate in the economy through easier access to financial services. Governor Diokno has pointed out blockchain and virtual currency technology as particularly promising.

Governor Diokno outlined the three (3) key principles to regulating FinTechs²:

1. Regulations that are risk-based, proportionate, and fair;
2. maintain an active collaboration with multiple stakeholders and
3. ensure that innovations must work for the benefit of customers particularly the vulnerable ones.

With this in mind, the BSP openly engages with stakeholders through a flexible "test and learn" environment or the regulatory sandbox that allows the regulators to fully understand emerging business models while at the same time assessing attendant risks. This has resulted in one of the most advanced regulations in Southeast Asia.

E-Money and Virtual Assets

E-money and VAs are fundamentally different, though both are forms of digital data that hold value. E-money and VA's hold potentially similar...