Philippines Implements new Rules for Crypto and ICOs

March 5, 2019

The Cagayan Economic Zone Authority (CEZA) – the regulatory body for the Philippines’ offshore special economic zone – has announced a range of new rules governing digital assets, as part of efforts to regulate the crypto space while ensuring investor protection.

The introduced measures that apply to the acquisition of assets such as utility and security tokens, along with issuer requirements relating to registration, security, and investor protection.

CEZA chief Raul Lambino said the aim is to provide “a clear set of rules and guidelines” for fostering innovation, while ensuring “proper compliance” on the part of those participating in the digital asset industry. The hope is that such regulations will help the crypto ecosystem gain wider acceptance among traditional financial systems and institutions.

Matters falling under the purview of Digital Asset and Token Offering (DATO) regulatory measures include the acquisition of digital assets such as security and utility tokens, the registration and certification of DATOs, their classification, measures and considerations for their review, security principles, investor protection measures, and procedures for enforcement.

CEZA is the highest regulatory authority under this framework, while the Asian Blockchain and Crypto Association (ABACA) assists in the implementation and enforcement of new rules and codes of conduct, serving as a self-regulatory organization (SRO).

Under the new rules, DATOs are categorized into three distinct tiers based on the amount of funds they are attempting to raise, with the first tier – known as Tier 1 – not being in excess of US$5 million and Tier 2 not exceeding US$10 million. Issuers of Tier 1 and Tier 2 DATOs who do not voluntarily apply for SRO certification are only required to comply with conditions involving basic submission, publication and registration.

Issuers of DATOs at Tiers 2 and 3 (the latter being those in excess of US$10 million) who voluntarily apply for certification must also possess agreements with Offshore Virtual Currency Exchanges (OVCEs), custodians and wallet providers. Additionally, they need to arrange for listing and custodianship, as well as appoint an SRO-accredited DA Agent, whose primary role is to advise and guide DATO issuers on their compliance obligations, while coordinating with the SRO and CEZA, such as in the event of a suspected breach of obligations.

DATOs are required to have the necessary documents with relevant information on issuers and projects, together with accompanying advice as provided by DA agents and experts. Tokens can only be listed on licensed OVCEs,

CEZEX, or CEZA Digital Asset Exchange, was the first OVCE authorized by the CEZA, enabling users to trade fiat and cryptocurrencies, security tokens, and derivatives such as commodities and Contract for Differences (CFDs). CFDs are contracts between two parties stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at the time of contract.

Pinnacle Digital is the digital asset exchange operator backing CEZEX, which also has the support of Singapore fintech investment firm IPE Global, the Phnom Penh Derivatives Exchange, and venture capital fund SB Kaikaku Fund, which is affiliated with Softbank Group Corporation.

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