BSP halts new licenses to virtual asset players

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has issued a three-year moratorium on the grant of licenses to new virtual asset service providers (VASPs) amid varied risks that may undermine financial stability.

BSP Governor Felipe Medalla said the  Monetary Board approved a modified approach to the grant of VASP license to maintain the integrity and stability of the financial system and strengthen consumer confidence in the digital ecosystem.

“Recent market developments have necessitated the adoption of a modified VASP licensing approach, which strategically shifts the focus to assessing the existing Bangko Sentral-registered VASPs’ overall performance and risk management systems, their impact on financial services and financial inclusion agenda, and their contribution toward the achievement of the Digital Payments Transformation Roadmap objectives,” Medalla said.

VASPs refer to entities that offer services or engage in activities that provide facility for the transfer or exchange of virtual assets – any type of digital unit that can be digitally traded or transferred, and can be used for payment or investment purposes.

With the modified approach approved by the BSP on Aug. 4 through  Resolution 1141, the regular application window for new VASP licenses shall be closed for three years starting Sept. 1, subject to reassessment based on market developments.

Applications that have completed or passed Stage 2 of the licensing process on or before Aug. 31 will still be processed and assessed for completeness and sufficiency of documentation or information submitted, as well as compliance with the licensing criteria to operate as a VASP based on Stage 3 requirements.

On the other hand, applications with incomplete requirements will be returned and tagged as closed.

Meanwhile, Medalla said existing BSP-supervised financial institutions (BSFls) that wish to expand operations  by offering VASP services, including non-custodial VASPs that wish to offer safekeeping and custodial services, could still apply for a VASP license provided that they have a Supervisory Assessment Framework (SAFr) composite rating of at least stable.

“Under the modified approach, existing BSFIs with strong risk management systems including appropriate client suitability assessment and customer onboarding practices, and intensified financial consumer education and awareness programs may still apply for a VASP license,” Medalla said.

According to Medalla, the BSP would continue to intensify its surveillance of the developments in the digital space, enhance existing monitoring capabilities over the digital threat landscape, and expand consumer awareness campaigns on the risks of holding virtual assets.

“The BSP remains supportive and proactive in responding to the developments in the digital financial ecosystem,” the BSP chief said.

As of end-June, the BSP has granted licenses to 19 VASPs.

BSP Deputy Governor Chuchi Fonacier said  the regulator aims to strike a balance between promoting innovation in the financial sector and ensuring that associated risks remain within manageable levels.

“In this light, the BSP recognizes that as virtual assets offer opportunities to promote greater access to financial services at reduced costs, they also pose varied risks that may undermine financial stability,” Fonacier said.

Under its roadmap, the BSP aims to shift 50 percent of total retail transactions in the country to electronic channels by 2023. So far it converted 30.3 percent of total retail transactions in 2021 to digital channels, up from 20.1 percent in 2020.