FinTech 2019 Comparisons

Last Updated June 06, 2019

Contributed By Quisumbing Torres

Law and Practice

Authors



Quisumbing Torres is a member firm of the Baker McKenzie network, offering global reach, strong connections with regulatory authorities, and experience in the FinTech area, making it an excellent adviser to guide financial institutions and technology companies through the panoply of issues in this rapidly evolving sector. The firm's Financial Institutions Industry Group provide financial institutions with pragmatic advice on tax structuring, M&A and joint ventures, IP protection, IT, outsourcing, real estate portfolio management, employment, compensation schemes and pensions, data privacy compliance, regulatory compliance, investigations, financial crimes and dispute resolution. Quisumbing Torres' Technology, Media & Telecommunications Industry Group offers sophisticated legal advice on a range of TMT issues which help forward-thinking companies remain innovative in the ever-evolving technological environment, as well as assisting them in finding strategic opportunities within the marketplace; the group focus on three key areas: (i) communications and mobility (including licensing and regulatory matters, internet issues, and privacy/data protection); (ii) digital media (including interactive entertainment, content and content delivery, broadcasting and transmission, and crisis and reputation management); and (iii) technology (including issues on artificial intelligence, big data, cloud computing and e-commerce).

The FinTech market in the Philippines has been steadily evolving, expanding from the usual financial services – money business operations such as remittance, payments and digital wallets – to other FinTech verticals such as distributed ledger technology (DLT), cryptocurrency, InsurTech, and RegTech.

Local regulators having the most intimate contact with the FinTech industry in the Philippines, primarily the Philippines' Securities and Exchange Commission (Philippine SEC), the Bangko Sentral ng Pilipinas (the BSP) and the Insurance Commission of the Philippines, have likewise consistently expressed an openness and positive regulatory view towards the developments offered by the FinTech market, particularly to the extent FinTech players, their products, services, or new ways of doing old things, are able to engender financial inclusion for a population that is largely unbanked or underserved by traditional financial institutions.

Over the last 12 months, financial services offered by the FinTech industry have expanded from traditional remittance services to other forms of money business operations, such as digital-wallet services, domestic and cross-border payments and virtual currency exchange operations. The BSP itself has expressed an intention to utilise artificial intelligence (AI) to assist in undertaking its mandate to oversee banks and other supervised financial institutions, including the use of API (application program interface) to connect financial service-providers to the BSP, the adoption of automated complaint-handling systems that would enable consumers to submit their concerns directly to the regulator through the usual mobile messaging systems or other online methods. The BSP is also one of the first financial authorities to partner with RegTech for Regulators Accelerator (R2A), a pioneering project that is anticipated to provide the central bank with increased capabilities in performing digital supervision over local financial institutions.

The development of the FinTech market in the Philippines is not without its challenges. FinTech players looking to engage in business or expand their operations in the Philippines commonly grapple with issues on the process of establishing the appropriate business organisation to engage in business in the Philippines – burdensome bureaucratic procedures, costly fees and less-than-ideal timetables for completion. Uncertainties in the scope, extent or intent of local regulations likewise pose a significant factor – while these may at times be considered as opportunities for creating additional lines of service, more often than not these grey areas are viewed as creating execution risk which could adversely affect the development of new products or services.

On the other hand, local regulators are keenly aware of the need to manage the balance between stifling innovation vis-à-vis ensuring accountability in respect of and compliance with notable public policies on data privacy, investor protection and redress, anti-money laundering and cybersecurity – areas where the FinTech market is perceived to be more open to abuse. Rationalising existing regulations and refining new and upcoming ones remain as key challenges faced by local regulators tasked with fostering a progressive and collaborative environment within which the FinTech market in the Philippines can grow.

In the Philippines, FinTech industry participants engaged in financial services currently comprise entities engaged in money business operations, such as remittance and transfer companies (whether as remittance direct agent, remittance sub-agent, or remittance network-providers), remittance platform-providers, digital-wallet service providers, virtual currency exchanges, and payments services entities (payment system operators, payment processors). Likewise, there has been steady growth in the mobile lending sector, with FinTech players engaging in microfinance operations through mobile applications and online platforms.

The regulation of FinTech industry participants engaged in financial services is based on the specific service or product offered by the participant, and follow closely the regulations applicable to non-FinTech entities intending to engage in the same or similar service or product.

Money Service Business Regulations

The BSP regulates remittance and transfer companies (RTCs) or entities that provide 'money or value transfer services', or financial services that involve the acceptance of cash, cheques, other monetary instruments or other stores of value and the payment of a corresponding sum in cash or other form of finance to a beneficiary by means of a communication, message, transfer, or through a clearing network, including services associated with a remittance business. RTCs include remittance agents, remittance platform providers, e-money issuers and virtual currency exchanges.

FinTech industry participants intending to engage in money or value-transfer services or money business operations are required to secure registration with and procure prior authorisation from the BSP.

Remittance Agents

A remittance agent is an entity that operates a remittance business network. Under prevailing BSP regulations, on money service business operations, 'remittance business' is broadly defined as ''the transferring of funds or facilitating the movement of funds from the sender or originator to a receiver or beneficiary locally and/or internationally and undertaken by any financial institution.''

Remittance Platform Providers

A remittance platform provider is an entity that (i) provides a shared or common platform or infrastructure, and (ii) maintains a settlement account in order to provide funds for remittance transactions within its network. Under prevailing regulations, a foreign entity intending to act as a remittance platform provider must do business in the Philippines through its locally incorporated subsidiary and register as such with the BSP.

E-money Issuers

The issuance of e-money in the Philippines is regulated by the BSP. Under BSP regulations, e-money is defined as "monetary value that is accepted as a claim against its issuer and: (a) electronically stored in an instrument or device (eg, cash cards, e-wallets accessible via mobile phones or other access device, stored value cards, and other similar products), (b) issued against receipt of funds of an amount not lesser in value than the monetary value issued, (c) accepted as a means of payment by persons or entities other than the issuer; and (d) withdrawable in cash or cash equivalent."

E-money issuers are classified into three categories, namely: (i) banks, (ii) non-bank financial institutions supervised by the BSP, and (iii) non-bank institutions registered with the BSP as a money transfer agent.

Virtual Currency Exchanges

The BSP regulates virtual currency-based payments and remittance transactions. Under BSP regulations, 'virtual currency' refers to any type of digital unit that is used as a medium of exchange or a form of digitally stored value created by agreement within the community of virtual currency users. 

BSP regulations on virtual currency do not cover virtual currency creators but only regulate entities facilitating the conversion or exchange of any virtual currency into fiat currency or vice versa. These VC exchanges are considered to be and are similarly treated as companies offering money or value transfer services (ie, RTCs). Thus, the basic requirements for RTCs – such as registration and minimum capitalisation – likewise apply to VC exchanges.

Online Lending Services

Online lenders operating in the Philippines (but not a bank or deposit-taking institution) may either be licensed as a lending company or a financing company under the Philippines' Lending Company Act or the Financing Company Act, respectively. Online lenders organised as lending companies or as financing companies are authorised to engage in lending activities using funds sourced out of its own capital, or from less than 19 persons. However, an online lender organised as a financing company and holding a quasi-banking licence may obtain funds from the public via the issuance of deposit-substitutes (eg, the issuance, endorsement or acceptance of debt instruments for the borrower's own account) for the purpose of re-lending.

Related Regulations: Regulation of Value-added Services

The delivery of financial services through mobile applications or online platforms generally fall under the definition of value-added services subject to regulation by the National Telecommunications Commission (NTC), pursuant to the Philippines' Public Telecommunications Policy Act.

Value-added services are broadly defined as "services which adds a feature or value to basic telephone service not ordinarily provided by a public telecommunications entity such as format, media, conversion, encryption, enhanced security features, paging, internet protocol, computer processing and the like." The NTC considers value-added services as enhanced services beyond those ordinarily provided by carriers or telecommunications entities, and applications services, including all types of applications delivered to and/or accessed by users or subscribers, such as mobile banking, electronic payments, point of sale service, or similar applications, are among those categorised by the NTC as value-added services.

Regulation of FinTech industry participants in the mobile financial services sector face slightly different regulation than legacy players. While there are certainly key areas where regulation is more or less consistent across the board – localisation, minimum capitalisation, and other financial prudential measures – FinTech players offering the same financial services as legacy players typically need to consider additional regulations applicable to the mode by which the FinTech product or service is offered.

For instance, as a rule, mobile applications or online-based platforms geared towards financial services (eg, mobile banking, delivery of financial information, etc) are generally considered as 'value-added services' under existing Philippine telecommunications. These regulations (relatively more archaic than contemporary financial services regulations) impose additional compliance issues, from separate registration requirements to (in certain issues) foreign capital ownership limitations not otherwise applicable to legacy players offering financial services outside of mobile or online applications or platforms.

There are currently no Philippine laws, rules or regulations governing the establishment or the conduct of regulatory sandboxes for the FinTech industry in the Philippines. However, both the Philippine SEC and the BSP maintain a relatively open approach to new players in the industry seeking to conduct pilot testing of FinTech products and services not currently regulated under prevailing legislation under a quasi-regulatory sandbox regime.

While the BSP has in the past publicly stated that it has instituted a 'regulatory sandbox' for the FinTech industry, this has been more akin to a 'test-and-learn' approach applied on a case-by-case basis, with specific FinTech players looking to engage directly with the BSP on the legal permissibility and potential regulation of their proposed product or service. In these instances, the BSP adopts a balanced regulatory approach focused on risk-based and proportionate regulation, active multi-stakeholder collaboration, and consumer protection.

As there are no established guidelines yet on the establishment or operation of regulatory sandboxes (whether with the Philippine SEC or with the BSP), FinTech industry participants proposing to engage in the delivery of FinTech services or conduct of FinTech activities not otherwise specifically regulated under relevant existing regulations may consider directly approaching or engaging with the Philippine SEC or the BSP to propose an ad hoc 'sandbox' through which operations could be undertaken under the regulator's supervision. Note, however, that any action, permit or approval to operate in such a manner from either the Philippine SEC or the BSP will be purely discretionary on the part of either authority.

Within the financial services sector, key regulators for FinTech players, products or services operating in this space comprise the Philippine SEC and the BSP. Other significant regulators include: (i) the National Privacy Commission (the NPC), on matters involving data privacy compliance, (ii) the NTC, on matters involving regulation of value-added services (including mobile applications or online platforms geared towards delivery of financial services), and (iii) the Philippines' Anti-Money Laundering Council (AMLC), on matters involving compliance with AML and countering financing-of-terrorism (CFT) regulations.

The Philippine SEC has the primary jurisdiction and supervision over all corporations, partnerships or associations who are grantees of a primary franchise (ie, a corporate franchise) and/or a licence to do business in the Philippines. Within the financial services sector, the Philippine SEC exercises jurisdiction and supervisory authority over FinTech industry participants or their activities relating to: (i) crypto-currency, to the extent classified as securities, including the conduct of initial coin offerings (ICOs), (ii) lending companies and financing companies organised under the Philippines' Lending Company Act and Financing Company Act, respectively, (iii) investment companies formed under the Philippines' Investment Company Act, including delivery of financial advisory services (if in connection or in conjunction with such investment companies).

On the other hand, the BSP exercises supervision over the operation of banks, supervised financial institutions (eg, quasi-banks, money changes and/or foreign exchange dealers, financing companies and investment houses with quasi-banking licences), and other non-bank financial institutions engaged in money business operations – that is, entities engaged in value or transfer services, including remittance companies, e-money issues or digital-wallet services, payments services, and virtual currency exchanges.

Under prevailing regulations, banks and BSP-supervised financial institutions (including FinTech industry participants engaged in money business operations) may outsource certain functions that are not considered as inherent functions. In particular, banks are prohibited from outsourcing inherent banking functions such as: (i) taking deposits from the public; (ii) granting of loans and extension of other credit exposures; (iii) managing of risk exposures; and (iv) general management.

Where non-inherent functions of a regulated or supervised entity are outsourced, the terms and conditions between the regulated entity and the relevant service-provider are required to be embodied in a contract and will need to incorporate mandatory provisions required by the BSP. These include provisions intended to ensure clear definition in the rights and responsibilities of the parties, the establishment of mechanisms to provide assurances for performance, reliability, security, confidentiality and reporting to the BSP, disaster recovery or business continuity contingency plans and procedures, and rights of access to pertinent documents and information in favour of the BSP.

Moreover, insofar as the outsourced activities will involve the collection, processing or sharing of personal information (eg, those relating to the regulated entity's clients or customers), the requirements and obligations imposed under local data privacy laws will need to be complied with.

Local regulations with the statutory mandate to regulate, oversee and licence FinTech industry participants engaged in financial services have inherent authority to impose fines and penalties (including imprisonment for directors, officers or other responsible persons for a corporate or other juridical entity), as well as to require that a person or entity found to have been in violation of pertinent regulations to cease and desist from its activities.

Recently, the Philippine SEC has had occasion to exercise its enforcement authority against certain companies found by the Philippine SEC to have undertaken ICOs without compliance with applicable Philippine securities registration regulations.

In January 2018, the Philippine SEC issued an advisory notice stating that “some of these new virtual currencies, based on the facts and circumstances surrounding their issuance, follow the nature of a security as defined by Section 3.1 of the Securities Regulation Code (SRC). However, unlike ordinary securities, these virtual currencies are neither guaranteed by any Central Bank nor backed by any commodity" (Section 1 paragraph 2 of BSP Circular No 944, Series of 2017). The Philippine SEC, in this particular advisory, said that when a virtual currency is analogous to the types of securities defined under the SRC, there is a strong possibility that such virtual currency is a security falling under the jurisdiction of the Philippine SEC and, therefore, the offer of that virtual currency to the public requires registration and compliance with the necessary disclosures for the protection of the investing public.

Following the issuance of the foregoing advisory, the Philippine SEC ordered Black Cell Technology Inc, Black Sands Capital, Inc, Black Cell Technology Limited, and KROPS – companies determined by the Philippine SEC to have been engaged in the sale or offer for sale to the public of KROPS tokens and KropCoins – to cease and desist from continuing to do so until full compliance with licensing and registration requirements applicable to the offer of securities under Philippine law.

Data Privacy Compliance

Philippine data privacy regulations are primarily embodied in the Philippines' Data Privacy Act, its implementing rules and regulations, as well as pertinent issuances by the NPC. For FinTech industry participants, the application of these regulations will require:

  • compliance with consent and/or notification requirements (both for the collection, processing or sharing of personal information and/or the processing of data via automated processing activities, automated decision-making and/or profiling);
  • the incorporation of mandatory provisions in agreements involving the outsourcing of collection, processing, sharing, retention or other regulated activities in respect of personal data; and
  • compliance with obligations imposed under Philippine data privacy laws on entities classified as personal information controllers and/or personal information processors.

AML Compliance

FinTech players engaged in the financial services sector – that is, those engaged in lending, financing, crypto-currency or virtual currency activities and money business operations, whether under the supervision of either or both the Philippine SEC or the BSP – are automatically considered as 'covered persons' under Philippine AML regulations. As covered persons, FinTech players are required to comply (in more or less the same manner as legacy players) with the registration requirements, know-your-customer and reporting obligations imposed under such regulations.

The use by FinTech industry participants engaged in financial services and subject to the supervision of the BSP of social media and similar tools is subject to regulation by the BSP. Under prevailing regulations issued by the BSP, supervised financial institutions intending to utilise social media and similar tools in the promotion of their products and services are mandated to establish an appropriate framework that will result in sound social media governance and risk-management. Any such framework must, at a minimum, include clearly defined governance structures indicating the roles and responsibilities of the institution's senior management in setting the direction on the use of social media, including its alignment to the BSP's strategic goals and plans, the establishment of policies and procedures governing (among others) content management and approval processes, acceptable and prohibited use, and social media crisis management plan and escalation procedures.

We are not aware of any persons reviewing the activities of industry participants, other than regulators. 

Given the grey areas in existing regulations, there have been instances where FinTech players have offered unregulated products and services in conjunction with regulated products and services. For instance, until recently, the operation of payment systems in the Philippines has not been subject to specific legislation and regulations. As a result, entities originally licensed only as e-money issuers were able to offer payments services to clients and customers without the need for separate registration or licensing as to their payments services activities. With the passage of the National Payment System Act in 2018, however, it is expected that entities engaged in payments services, including operators of designated or non-designated payment systems, will need to be separately registered with and licensed by the BSP.

There are currently no Philippine laws or regulations governing the delivery of financial advisory services through AI-based or algorithm-based platforms (such as robo-advisers).

At this current time, in the Philippines there are no significant differences in the regulation of loans to individuals, small businesses and similarly situated borrowers.

Online lenders operating in the Philippines (but not a bank or deposit-taking institution) may either be licensed as a lending company or a financing company under the Philippines' Lending Company Act or the Financing Company Act, respectively. Online lenders organised as lending companies or as financing companies are authorised to engage in lending activities using funds sourced out of its own capital, or from less than 19 persons. However, an online lender organised as a financing company and holding a quasi-banking licence may obtain funds from the public via the issuance of deposit-substitutes (eg, the issuance, endorsement or acceptance of debt instruments for the borrower's own account) for the purpose of re-lending.

Peer-to-peer lending is not presently regulated in the Philippines.

See above, 4.2 Sources of Funds for Loans.

The BSP, through Circular No 980, Series of 2017 – otherwise known as the National Retail Payment System (NRPS) Framework – has issued a policy and regulatory framework for the establishment of a safe, efficient, and reliable electronic retail payment system in the Philippines. The NRPS framework covers all retail payment-related activities, mechanisms, institutions and users. It applies to Philippine peso-denominated domestic payments for payments of goods and services, domestic remittances or fund transfers.

Under the NRPS framework, all clearing must be performed within the NRPS governance structure. The NRPS framework prohibits bilateral arrangements outside of the NRPS governance structure, as such arrangements carry risks that cannot be identified, measured, monitored or controlled.

Other than the foregoing, payment processors may use existing payment rails or they may create or implement new ones as may be appropriate or commercially viable under the circumstances. With the passage of the Philippines' National Payment Systems Act, it is possible that payment processors who create or implement new payment rails may be subject to separate registration or licensing requirements imposed under the said law on operators and other participants of designated or non-designated payment systems.

Fund administrators are subject to regulation either by the Philippine SEC or the BSP, depending on the nature of the entity acting as such. Fund administrators (to the extent performing same or similar functions as fund managers and holding an investment company adviser licence) of investment companies organised under the Philippines' Investment Company Act and holding an investment company adviser licence are subject to regulation by the Philippine SEC. On the other hand, fund administrators or fund managers organised as banks and holding a trust licence are subject to regulation by the BSP. Note, however, that the delivery of financial advisory services per se is not subject to regulation by either the Philippine SEC and/or the BSP.

Fund advisers (to the extent performing same or similar functions as fund managers and holding an investment company adviser licence) of investment companies organised under the Philippines' Investment Company Act are required to manage the investment assets of the investment company and perform its functions in accordance with the investment company's prospectus, its agreements with the investors of the investment company, the provisions of the Investment Company Act and other pertinent regulations, to maintain accurate and adequate accounting and other records (for the benefit of the investment company and its investors) and to implement supervision and control procedures, including procedures for establishing and segregating transactions, and to undertake periodic reporting to the Philippine SEC, the investment company and its investors. To the extent certain of the fund adviser's functions and responsibilities are delegated to a fund administrator, a fund adviser would typically be expected to require the imposition of contractual obligations on the part of a fund administrator to ensure compliance with the foregoing. 

Fund administrators (to the extent that they are performing same or similar functions as fund managers and holding an investment company adviser licence) act as 'gatekeepers' such that they are required to report suspicious or unlawful behaviour upon becoming aware thereof. Under the Philippines' Investment Company Act, a fund manager/administrator is required to report to the Philippine SEC any material development or breach of the covenants with the investment company or of the provisions of pertinent regulations that:

  • relates to the establishment, management, operation or dissolution of the investment company or to the registration and sale of securities;
  • has or is likely to have material adverse effect on the interests of the shareholders/unit holders;
  • relates to a material amendment of the contract between the investment company and itself, including the termination of the contract, and the withdrawal or non-renewal of its licence to operate as such and the dissolution of its corporate existence.

Separately, a fund administrator (to the extent performing same or similar functions as fund managers and holding an investment company adviser licence) is considered as a covered person under Philippine AML regulations and is required to comply with reporting obligations (on covered and suspicious transactions) imposed under such regulations.

Under the Philippines' Securities Regulation Code, the following types of trading platforms or organised marketplaces are permissible in the Philippines:

  • exchanges, defined as "organised marketplaces or facilities that bring together buyers and sellers, and execute trades of securities and/or commodities",
  • over-the-counter markets; and
  • alternative trading systems, for "innovative securities, securities of small, medium, growth and venture enterprises, and technology-based ventures", and which constitute, operate, maintain or provide an electronic marketplace or facility for matching and executing trades in such securities.

Exchanges must be registered with the Philippine SEC as self-regulating organisations. On the other hand, trading platforms intending to act as alternative trading systems are prohibited from setting rules governing the conduct of subscribers (other than the conduct of such subscribers' trading on such facility) nor can such platforms discipline subscribers other than by exclusion from trading.

It should be noted that, to date, the Philippine SEC has suspended until further notice the trading of commodities futures contracts in the Philippines – and, as a consequence, the creation, operation or licensing of commodities futures exchanges in the Philippines.

There are no different regulatory regimes for different asset classes in the Philippines.

To date, the Philippine SEC has not issued regulations specifically governing the operation of crypto-currency exchanges.

Nevertheless, with the increasingly prevalent use of crypto-currencies in the performance of payments services and remittance activities, such assets have been classified by the BSP as 'virtual currencies' for purposes of regulating crypto-currency platforms offering, as services, the conversion of crypto-currency to cash and vice versa. Note, however, that the BSP itself does not regulate the creation, issuance, trading or sale of virtual currencies. Regulations on virtual currency exchanges are limited to imposing registration and licensing requirements for persons or entities who engage in the conversion of virtual currency to fiat currency (and vice versa).

The Philippine Stock Exchange, Inc, the Philippines' sole stock exchange, and the Philippine Dealing & Exchange Corp. (a secondary market for the trading of financial institutions' securities) are both organised and registered with the Philippine SEC as self-regulatory organisations. Both exchanges have adopted listing standards including qualifications and other criteria applicable to the issuer (capitalisation, operating history, etc) and the securities sought to be listed (size, plan of distribution, etc).

No order handling rules apply at this time.

To date, there do not appear to be regulations specifically governing the operation of peer-to-peer trading platforms.

Pursuant to the Philippines' Securities Regulation Code and its implementing rules and regulations, broker dealers, associated persons and salesmen of a broker dealer (in this context, collectively referred to as a 'registered person') are mandated to conduct business with due skill, care and diligence, in the best interest of their clients and for the integrity of the market. A registered person, acting for or with a client, is required always to execute client orders on the best available terms in compliance with the Best Execution Rule. The Best Execution Rule, as provided under the Securities Regulation Code, provides that "in any transaction for or with a customer, a broker dealer shall use reasonable diligence to ascertain the best market for the subject security and buy and sell in such market so that the result to the customer is as favourable as possible under prevailing market conditions". Factors to be considered in determining whether there is reasonable diligence used include the price, promptness of execution of the order, size of the transaction, available markets, settlement cycle and attendant transaction costs.

Furthermore, a registered person is also mandated to avoid conflicts of interests and when it cannot be avoided, should ensure that clients are fairly treated and properly informed of such conflicts of interest. Under the prevailing regulations, where a registered person has a material interest in a transaction which may give rise to an actual or potential conflict of interest in relation to a transaction, that registered person shall neither advise, nor deal in relation to the transaction unless the material interest or conflict has been properly disclosed to the client and all reasonable steps to ensure fair treatment of the client has been taken.

To date, there do not appear to be regulations specifically governing the procedures relating to payment for order flow.

Note, however, that any arrangements of broker dealers, associated persons and salesmen of a broker dealer involving payment for order flow will need to comply, to the extent applicable, to the Best Execution Rule, as discussed above.

To date, there do not appear to be regulations issued by the Philippine SEC specifically governing the creation and usage of high-frequency and algorithmic trading.

The operation of financial research platforms (and the delivery of financial information services through such platforms) may be considered as a type of value-added services subject to regulation by the NTC under the Philippines' National Telecommunications Act. Value-added services regulated by the NTC include mobile applications or online platforms delivered to and/or accessed by users or subscribers, such as mobile banking, electronic payments, point of sale service, financial information services or similar applications.

In recent practice, however, the NTC has adopted the position that value-added services may be 'regulated' or 'unregulated' value-added services, with the former being subject to registration with and licensing by the NTC. Under this view, value-added services may be considered as regulated value-added services if (i) the services are offered for a fee, and (ii) the services are offered indiscriminately to the public.

The spreading of rumours, exaggerated, unwarranted or misleading statements or claims and other unverified information is regulated under Philippine libel and/or defamation laws, privacy laws and, where such information relates to or may otherwise be considered as market-sensitive, under Philippine securities laws. Under such securities laws:

  • the circulation or dissemination of information that may affect the price of any security listed in an exchange is prohibited and may be considered as manipulative market operations which may result in the imposition of fines and penalties (including imprisonment of the directors, officers and other responsible persons); and
  • as a rule, communications by securities professionals with the public must be based on principles of fair dealing and good faith and provide a sound basis for evaluating facts regarding any particular security, industry or service offered.

We are not aware of any Philippine regulations that specifically provide for the manner by which conversations within or through the platform should be curated to avoid pump-and-dump schemes, the spread of inside information, or other types of unacceptable behaviour. Considering, however, that the regulatory action will likely be undertaken (at the first instance) in respect of the owner or operator of the platform, it would be prudent for the owner or operator of such a platform to ensure that appropriate safeguards and control mechanisms are in place to monitor – and, where warranted, to remedy – any improper communication or disclosure of information that is prohibited under pertinent regulations.

To date, there do not appear to be any Philippine regulations that specifically impose an obligation on the part of platform-providers to act as 'gatekeepers' or to report suspicious or unlawful behaviour upon becoming aware thereof.

The InsurTech industry in the Philippines is in its initial stages of development, and the extent of such development has been focused on increasing and improving distribution channels of insurance products through digital means and platforms. To date, other than regulations issued by the Insurance Commission regulating the use of e-commerce and digital platforms for product distribution and customer on-boarding, there do not appear to be any regulations specifically governing the underwriting process for InsurTech industry participants in the Philippines.

Philippine law generally classifies insurance into two types – life insurance and non-life insurance. Life insurance is defined as "insurance on human lives and insurance appertaining thereto or connected therewith." Any other type of insurance, such as property, marine or fire insurance, is considered non-life insurance. There are separate rules and regulations for each type of insurance under Philippine law.

The RegTech industry in the Philippines is in its initial stages of development. To date, there do not appear to be any regulations specifically governing the delivery of RegTech solutions or regulating RegTech providers (other than related legislation relating to common areas of regulations for FinTech companies in general, such as data privacy compliance and the like).

Given the partnership between the BSP and Regulators Accelerator (R2A), it is likely that regulations more particularly focused on RegTech and RegTech providers will be issued in the foreseeable future.

The use of blockchain in the financial services industry (and in other industries, such as mining, transportation and logistics) is an emerging trend in the Philippines. To date, we have seen blockchain solutions proposed to be utilised (as part of a pilot programme) to facilitate domestic remittance transactions in a domestic remittance network established by a lead universal bank, the blockchain solutions-provider and participating rural banks.

However, given the absence of specific blockchain-related regulations, legacy players looking to implement blockchain solutions have become understandably wary about the emergence of such regulations as the use of blockchain becomes more prevalent. Accordingly, we have seen certain legacy players limit the adoption of blockchain solutions to incidental or collateral activities (eg, recording of transfers or similar transactions) of the institution.

As with most innovations introduced by the developing FinTech industry in the Philippines, local regulators, including the Philippine SEC and the BSP, have adopted a positive approach towards the application of blockchain solutions to key industries, such as financial services, mining, transportation and logistics. To date, however, other than the draft regulations on ICOs circulated by the Philippine SEC (which relate more to regulation of ICOs in general) and the regulations on virtual currency exchanges (which relate more to registration and licensing requirements for entities engaged in remittance and exchange operations in respect of virtual currencies), local regulators have yet to issue regulations specific to the use or adoption of blockchain technologies or blockchain solutions.

Under the draft ICO regulations previously issued by the Philippine SEC, blockchain assets (either in the form of 'coins', 'tokens', 'virtual currency' or 'utility tokens') may be considered as regulated financial instruments (and thus classified as 'security tokens') to the extent the same may be considered as securities under existing securities regulations. Under the Philippines' Securities Regulation Code, securities are defined as "shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture evidenced by a certificate, contract, instruments, whether written or electronic in character." If the coin or token is considered as a security token, the issuance, sale or offer of sale thereof to the public will be subject to Philippine SEC licensing, disclosure, registration and reporting requirements imposed under general securities laws and the ICO regulations.

Under the draft ICO regulations previously issued by the Philippine SEC, to the extent blockchain assets are considered as securities (and designated as security tokens), issuers of security tokens are similarly regulated as issuers of traditional securities. The same regulations impose licensing, disclosure, registration and reporting requirements on issuers of security tokens particularly in respect of the issuance, sale or offer for sale of such security tokens.

The licensing, disclosure, registration and reporting requirements imposed on issuers proposing to undertake an ICO currently contemplate a two-phase review process, with the first of these processes intended to determine the nature or status of the blockchain assets sought to be issued, sold or offered for sale to the public as a security (or otherwise). In general, regulation of an ICO follows closely those regulatory principles adopted by the Philippine SEC on the issue or offer of traditional securities, with the exception of certain regulations being particularly applicable to security tokens (eg, disclosures via the white paper, rules on permissible and prohibited advertising, etc).

To date, the operation of blockchain asset-trading platforms is regulated only by the BSP and only in respect of the conversion of such assets (denominated by the BSP as virtual currency, without regard to whether the asset is a coin, token, or a security token) to fiat currency and vice versa.

We are not aware of any regulations (including under the draft ICO regulations) specifically applicable to the funds that invest in blockchain assets.

In the Phllippines, virtual currencies may mean either (i) virtual currencies as used in the operation of virtual currency exchanges, or (ii) e-money or stores of value or similar digital currencies

To the extent blockchain assets are used in the performance of payments services, remittance or other money or value-transfer activities, such assets are classified by the BSP as 'virtual currency'. Under prevailing regulations issued by the BSP, 'virtual currency' is defined as "any type of digital unit that is used as a medium of exchange or a form of digitally stored value created by agreement within the community of virtual currency users", that are "not issued nor guaranteed by any jurisdiction and do not have legal tender status." It should be noted, however, that the BSP itself does not regulate the creation, issuance, trading or sale of virtual currencies. Regulations on virtual currency exchanges are limited to imposing registration and licensing requirements for persons or entities who engage in the conversion of virtual currency to fiat currency (and vice versa).

On the other hand, if the virtual currency is (or functions more closely as) e-money or digital currency, the creation and issuance thereof is regulated by the BSP, and entities intending to engage in e-money operations are required to register with and procure an e-money licence from the BSP. Under prevailing regulations, e-money is defined as "monetary value, as represented by a claim on its issuer, that is: (a) electronically stored in an instrument or device; (b) issued against receipt of funds of an amount not lesser in value than the monetary value issued; (c) accepted as a means of payment by persons or entities other than the issuer; (d) withdrawable in cash or cash equivalent; and (e) issued in accordance with e-money regulations."

We believe that Philippine privacy regulations such the Philippines' Data Privacy Act and its implementing rules and regulations may adversely impact the promotion, development or adoption of blockchain technologies or blockchain solutions as these regulations, at this point in time, are based on broad principles that appear to go against essential characteristics of blockchain technology. Some of these contrasting principles are: (i) the emphasis of Philippine privacy laws on accountability of personal information controllers vis-à-vis the decentralised accountability of blockchain technology; and (ii) 'right to be forgotten' privacy laws versus the immutability of data in the blockchain.

To date, there are no regulations supporting or inhibiting open banking in the Philippines.

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Quisumbing Torres is a member firm of the Baker McKenzie network, offering global reach, strong connections with regulatory authorities, and experience in the FinTech area, making it an excellent adviser to guide financial institutions and technology companies through the panoply of issues in this rapidly evolving sector. The firm's Financial Institutions Industry Group provide financial institutions with pragmatic advice on tax structuring, M&A and joint ventures, IP protection, IT, outsourcing, real estate portfolio management, employment, compensation schemes and pensions, data privacy compliance, regulatory compliance, investigations, financial crimes and dispute resolution. Quisumbing Torres' Technology, Media & Telecommunications Industry Group offers sophisticated legal advice on a range of TMT issues which help forward-thinking companies remain innovative in the ever-evolving technological environment, as well as assisting them in finding strategic opportunities within the marketplace; the group focus on three key areas: (i) communications and mobility (including licensing and regulatory matters, internet issues, and privacy/data protection); (ii) digital media (including interactive entertainment, content and content delivery, broadcasting and transmission, and crisis and reputation management); and (iii) technology (including issues on artificial intelligence, big data, cloud computing and e-commerce).

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