The Philippines’ Securities and Exchange Commission Office of the General Counsel (SEC-OGC) has opined that Bitcoin is not automatically considered a security under the country’s Securities Regulation Code (SRC), but certain transactions involving Bitcoin may fall under securities regulations depending on their structure.
Why does this news matter: The decision could impact crypto exchanges, fintech startups, and institutional investors in the country.
Key details:
The SEC issued Opinion No. 24-44 in response to a request from Bonetto Ventures, Inc. (BVI), a company that operates a Bitcoin exchange platform.
The Questions Asked:
BVI is requesting the SEC to give an opinion on the following inquiries:
- Is Bitcoin a security under the definitions stated in the Securities Regulation Code (SRC)?
- Is BVI considered engaged in the sale of securities like derivatives because it is a Bitcoin exchange platform?
How the SEC Answered the Inquiry
The SEC reviewed Bitcoin’s classification using the Howey Test, a legal standard to determine whether an asset qualifies as a security.
To recap, Howey Test is often used to determine whether a transaction qualifies as an investment contract and therefore falls under the regulation of the SEC.
Howey Test Checklist
- Is there an investment of money or another form of value (such as crypto, property, or assets)?
- Is the investment pooled together with others, where the profits or losses are shared?
- Are investors purchasing with the expectation of making a return on investment?
- Do investors rely primarily on the managerial or entrepreneurial efforts of the promoters, a company, or a third party to generate profits?
However
The regulator found that Bitcoin lacks fundamental security characteristics, such as voting rights, dividends, and corporate governance participation.
An interest in the blockchain does not necessarily entail these rights or that there is a profit-making venture. Further, a Bitcoin wallet could not be akin to a stock certificate
SEC Office of the General Counsel
Still: The SEC clarified that while Bitcoin itself is not inherently a security, transactions involving Bitcoin may fall under the definition of an investment contract if they meet certain conditions.
“From the foregoing, depending on certain circumstances, Bitcoin may be considered an investment contract, hence, a security.”
SEC Office of the General Counsel
The SEC-OGC concluded with the following:
“Considering the numerous factors to be considered on a case to case basis as above-mentioned, the Commission cannot give a definitive answer due to the limited facts provided.”
SEC Office of the General Counsel
Current regulatory landscape
The Bangko Sentral ng Pilipinas (BSP) regulates Virtual Currency Exchanges (VCEs) which is now called Virtual Assets Service Providers (VASP), requiring compliance with anti-money laundering and consumer protection policies. (Read more: List of Licensed Virtual Currency Exchanges in the Philippines)
SEC has recently issued draft rules on Crypto Asset Service Providers (CASP):
The public trading of commodity futures contracts remains suspended in the Philippines, limiting Bitcoin-related derivatives trading. Futures trading was also discussed in the SEC CASP Draft Rules, stating that platforms cannot offer crypto futures trading without explicit approval from the SEC.
The key takeaways:
- While the SEC did not outright classify Bitcoin as a security, businesses dealing with it must exercise caution.
What’s next:
- The SEC may issue further clarifications as the crypto industry evolves.
- Businesses dealing in Bitcoin should review their compliance frameworks to ensure they do not fall under securities regulations.
This article is published on BitPinas: Exclusive: Philippines SEC Refuses to Outright Classify Bitcoin as a Security
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