Philippines Central Bank Proposes 12-Month Moratorium on New Payment System Operator Registrations Amidst Enhanced VASP Controls

The Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, has put forth a significant proposal that could reshape the landscape of payment system operations within the country. Under a draft circular, the BSP is suggesting a 12-month suspension on the acceptance and processing of new applications for operators of payment systems (OPS). This moratorium is intended to facilitate a comprehensive and "holistic review" of the BSP’s existing taxonomy and licensing framework for payment systems. Alongside this proposed freeze, the central bank also aims to implement tighter controls on payment arrangements that involve virtual asset service providers (VASPs).

The draft circular, accessible through a link to the BSP’s official website, outlines the specifics of this proposed regulatory overhaul. The primary objective behind the 12-month freeze on new OPS registrations is to provide the BSP with the necessary time and space to conduct an in-depth examination of its current regulatory structure governing payment systems. This review is expected to encompass a re-evaluation of the classification of various payment system operators and a potential recalibration of the licensing requirements to ensure they remain robust, relevant, and capable of addressing the evolving complexities of the financial technology sector.

While the BSP plans to suspend the processing of new applications, it has indicated that applications submitted prior to the commencement of this suspension will still undergo evaluation. However, the final approval or denial of these pending applications will be deferred until the moratorium period concludes. This approach aims to prevent a backlog of applications while still allowing for the review of existing submissions. Furthermore, the draft circular stipulates that entities will be prohibited from commencing activities that necessitate OPS registration unless they receive explicit authorization from the BSP to do so. This measure is designed to prevent new market entrants from operating in a regulatory grey area while the review is underway.

A critical component of the proposed regulations focuses on the interaction between BSP-supervised financial institutions and VASPs. Specifically, the draft circular mandates that BSP-supervised institutions offering merchant acquisition services must engage with regulated VASPs through direct merchant arrangements. This means that these institutions will be directly responsible for the onboarding and management of VASPs as merchants. Such relationships will be subjected to a significantly enhanced level of scrutiny. This includes implementing rigorous enhanced due diligence procedures to ascertain the legitimacy and compliance of VASPs.

Moreover, the proposed framework calls for intensified monitoring of these direct merchant arrangements. This monitoring will extend to the imposition of transaction and settlement limits. These limits are intended to mitigate potential risks associated with the volume and value of transactions processed through VASPs. In addition to limits, other risk-based controls will be required to be implemented. These controls are likely to encompass measures such as real-time transaction monitoring, fraud detection systems, and robust anti-money laundering (AML) and counter-terrorist financing (CTF) protocols, tailored to the specific risks posed by virtual asset services.

The scope of these enhanced controls is comprehensive, covering any virtual asset firm that is required to be licensed, registered, or authorized by a relevant regulatory body. This includes entities licensed or authorized by the BSP itself, as well as those regulated by the Philippine Securities and Exchange Commission (SEC) or any other competent authority within the Philippines. The draft circular explicitly lists VASPs alongside other business categories that are typically subject to stringent oversight, such as gambling businesses, gaming providers, adult-oriented businesses, and money service businesses. This categorization underscores the BSP’s recognition of the inherent risks and the need for a high degree of regulatory control when dealing with these sectors.

The rationale behind these proposed measures appears to be a proactive approach by the BSP to strengthen the integrity and resilience of the Philippine payment system. The rapid growth and increasing adoption of digital payment methods, coupled with the emergence of virtual assets, present both opportunities and challenges for financial regulators. By temporarily halting new registrations and imposing stricter controls on VASP-related transactions, the BSP seeks to ensure that the regulatory framework keeps pace with technological advancements and emerging financial innovations, thereby safeguarding the stability and security of the financial system.

The draft circular is currently open for public comment, with the BSP actively soliciting feedback from stakeholders. This consultative process is a crucial element of regulatory development, allowing the BSP to gather diverse perspectives and address potential concerns before finalizing the regulations. If adopted, the proposed measures are slated to take effect 15 days after their official publication. This timeline provides a brief window for affected entities to prepare for the new requirements.

Cointelegraph, in its reporting, reached out to the BSP for further clarification and additional details regarding the proposed regulations. However, as of the time of publication, no response had been received from the central bank. This lack of immediate official comment highlights the ongoing nature of the proposal and the BSP’s commitment to a thorough review and consultation process.

This development follows recent actions by the Philippine SEC, which has previously flagged certain cryptocurrency platforms, including dYdX and six other crypto entities, as operating without the necessary authorization within the Philippines. This indicates a broader regulatory trend in the country towards greater oversight and control of the virtual asset and digital payment sectors. The BSP’s proposed moratorium and enhanced controls are therefore consistent with this broader push for regulatory clarity and consumer protection in the burgeoning digital finance space.

The proposal by the BSP underscores the increasing global focus on regulating virtual asset service providers and ensuring the integrity of payment systems. As the financial ecosystem continues to evolve, regulators worldwide are grappling with the challenge of balancing innovation with risk management. The Philippines’ central bank’s proposed measures represent a significant step in its ongoing efforts to create a secure and robust payment infrastructure that can support both traditional and emerging financial services. The public consultation period will be critical in shaping the final form of these regulations, and market participants will be closely watching for the BSP’s next steps.