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Philippines central bank directs crypto businesses to conduct background checks on customers

Philippines central bank directs crypto businesses to conduct background checks on customers

The Philippines Central bank Bangko Sentral ng Pilipinas (BSP) has released a memorandum targeting customer management by cryptocurrency businesses. The new policy announced on February 18, 2021, requires service providers to carry out stringent background checks on clients.

In releasing the new guidelines (Key provisions/requirements under Circular No. 1108 dated 26 January 2021), BSP Deputy Governor Chuchi G. Fonacier notes that the aim is to strengthen customer financial consumer protection policies. The country’s crypto players are under the umbrella of virtual asset service providers (VASP).

Clients transferring digital assets like Bitcoin will provide information about the sending customer’s name, originator’s account number, senders physical address or national identity number, customer identification number, date and place of birth, beneficiary’s name, and beneficiary’s account number. 

The latest regulation further compels VASPs to conduct a background check on new customers and even existing ones. Businesses will now carry out additional checks if there is suspicion of money laundering or terrorist financing. Information that lacks accuracy will also warrant more scrutiny.

BSP acknowledges the crypto sector’s potential to revolutionize the financial sector

However, the bank acknowledges that the cryptocurrency sector holds great potential in revolutionizing the financial sector. The bank states that:

“The Bangko Sentral recognizes that virtual- asset (VA) systems have the potential to revolutionize the delivery of financial services by providing faster and more economical- means to transfer funds, both domestic and international, and may further support financial inclusion. These benefits, however, should be considered along with the attendant risks in VAs considering the higher degree of anonymity involved, the velocity of transactions,volatility of prices, and global accessibility.”

If a transaction is worth $1,000 (P50,000), the VASPs will store accurate records on the fund’s source and customer details. Entities should also be ready to share the information when required. 

The regulator adds that VASPs will set up their background check systems to curb some of the vices associated with the digital currency sector. 

“It is for these reasons that the Bangko Sentral shall- ensure that the VA systems shall not be misused and that the Philippines shall- not be used for money laundering (ML), terrorist financing (TF), and proliferation financing(PF) activities. In addition, VA transactions also pose other risks, such as information technology (IT) risks, consumer protection, and financial stability concerns, among others,” BSP adds. 

Transparent terms and conditions

Consequently, BSP directs businesses to enhance transparency in their terms and conditions before customers commit to them. Of keen interest, VASPs should educate clients about the security of their assets and wallet. Additionally, they should demonstrate how to secure sensitive data, and fees charged during the transaction. 

Elsewhere, wallet service providers should have a cybersecurity framework and security measures to promote confidentiality and integrity. Simultaneously, businesses providing fiat wallets need to maintain enough liquid assets for easy redemption

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