Cryptocurrency businesses must now conduct background checks, says BSP

The Bangko Sentral ng Pilipinas, the country’s central bank, laid out new guidelines for cryptocurrency businesses. In a Feb. 18 memorandum, BSP says that Virtual Asset Service Providers (VASP) should conduct “background checks” on clients and customers following the massive spike of cryptocurrency exchanges over the past year.

Memorandum No. 2021-103 specifies Customer Due Diligence for any relevant VASP business transaction ranging from P5,000 or more regardless of the number of transactions, in which the memo specifies the use of a system in VASP to “identify and determine occasional customer or transaction.”

According to the memorandum, there are four key standards to be considered for VASPs to conduct Customer Due Diligence; this includes transactions that:

  1. it establishes business relations with any customer;
  2. undertakes any occasional but relevant business transaction for any customer who has not otherwise established business relation with the VASP;
  3. where there is suspicion of money laundering or terrorist financing; or
  4. where there is doubt about the veracity or adequacy of previously obtained customer identification data.

More stringent requirements will be needed for cryptocurrency transactions exceeding P50,000 (both local and foreign currency) before any transaction action. Information such as originator’s name, originator’s account number, originator’s physical address, and the beneficiary account number. According to the BSP, VASPs shall uphold the confidentiality of this information.

Moreover, in a text message sent to BusinessWorld, BSP Deputy Governor Chuchi G. Fornacier also highlights the importance of implementing the recently drafted memorandum.

“With strict risk-based implementation of KYC (know your customer) by BSP-supervised financial institutions, AML (anti-money laundering) risks are mitigated.”

Moreover, Fornacier also emphasized that the memorandum applies to VASPs and all BSP financial institutions that provide financial services, highlighting the importance of consumer protection, especially when people are exposed to threats of scams and other illegal activities.

New guidelines show best practices for cryptocurrency businesses

As a result of this memorandum, transactions of cryptocurrency such as Bitcoin will now require information fields asked in KYC, which includes sender’s identification (proof of identity, name, address, and proof of such address) and likewise the same set of information for the beneficiary.

With the recent incident involving the Philippine Digital Asset Exchange (PDAX) wherein a service outage that was caused by an erroneous upload of bitcoin price left a number of investors being unable to access their account, BSP has enforced stronger regulations to VASPs treating them similar to that of conventional banks and ensuring that the clients are protected and ensured that Anti Money Laundering and KYC Regulations are properly followed through and through and prevent any illegal activities involving money laundering.

As Bitcoin further skyrockets to more than $52,000 (or an estimate of more than P2.5 million), more and more Filipino investors have taken measures in investing in stocks and primarily in cryptocurrency such as Bitcoin, Dogecoin and Etherum, among others, BSP aims to place safeguards against the unprecedented rise in crypto businesses by ensuring that they and their clients are in check and are not tagged in illegal activities.

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