Invoking the Securities and Exchange Commission’s (SEC) jurisdiction under the Financial Consumer and Protection Act (FCPA), the SEC recently issued Memorandum Circular (MC) No. 4 (Crypto-Asset Service Provider [CASP] Rules) and MC No. 5 (CASP Guidelines). By considering crypto-assets as “financial products” under the FCPA, the SEC was able to pivot away from the complexities that would arise if crypto-assets are viewed solely from the lens of securities law.

From an FCPA perspective, as a rule, crypto-assets shall not be sold, offered for sale, or distributed in the Philippines without complying with the provision of the CASP Rules and CASP Guidelines. One of them is that the offeror must file with the SEC (and publish on the platform’s website, social media account, and other means of communication) a “disclosure document relative to a Crypto-asset to be offered in the Philippines.” There are exceptions to the disclosure obligation as when the crypto-asset is offered for purposes other than as a financial product (e.g. the crypto-asset is given as a reward for mining).

MC No. 4 defined a CASP as an entity that as a business, offers or engages in the provision of one or more crypto-asset services, including by making available a digital platform that provides those services. In turn, crypto-Asset Services refer to any or more of the following services and activities in relation to any crypto-asset (i) Offering of crypto-asset to the public (which is not defined under MC 4); (ii) Operating a crypto-asset trading venue. Crypto-Asset Exchange is an entity that, as a business, offers or engages in the operation of a crypto-asset trading venue; (iii) Crypto-asset intermediation activities (these activities include advising, dealing, order execution, and, order transmission).

Under the draft version of the CASP Rules, the Rules apply to all crypto-asset service providers that are offering crypto-asset services in the Philippines. But, under MC 4, the CASP Rules “shall apply to all CASPs that are offering crypto-asset services [public offering of crypto-assets being only one of those services] and third-party service providers who engage in the marketing of crypto-assets and crypto-asset services” removing the qualifying phrase “within the Philippines.” The SEC shall regulate and supervise the conduct of CASP through the issuance of licenses and authorizations pertaining to crypto-asset services. Thus, under MC No. 5 (CASP Guidelines), a CASP must be registered as such with the SEC, and one of the requirements to be able to do so is that the CASP applicant must be a corporation registered with the SEC. Acting as a CASP without being duly authorized by SEC is prohibited.

The definition of crypto-assets and crypto-asset services is also important because MC No. 4 seeks to regulate an activity that is peripheral to both crypto-assets and crypto-asset services but is nonetheless significant in driving crypto-asset adoption and its price: marketing or inducement to purchase crypto-assets or crypto-asset services. This activity is particularly relevant to crypto exchanges and/or event organizers partnering with these exchanges (or with the entity who developed the underlying blockchain protocol). MC No. 4 defines marketing as “the act of communicating, offering, promoting, advertising, or delivering crypto-assets or crypto-asset services” as views it broadly as “any form of inducement, endorsement, or solicitation may qualify as Marketing” including xxx

-      7.3.3 Events held in the Philippines that may facilitate the solicitation of clients or incentivize the use of any product and/or service related to any CASP Activity and/or the acquisition or disposal of any Crypto-asset;

-      7.3.4 Advertisements, sponsored editorials, paid or earned media, and all forms of publicity-driving content or materials, including branding and merchandise;

-      7.3.5 “Airdrops” xxx; and

-      7.3.6 Educational content, including articles, papers, presentations, discussions, and tutorials, whether online, offline, audio, and/or visual, unless the educational content is made in good faith and purely for educational purposes.

Because of the broadness of the definition of marketing and the consequences related to such activity, it may do well for entities who act as CASP to study the new regulation closely.

As a rule, those who will engage in marketing or inducement to purchase cryptoassets or crypto-asset services must be registered as a corporation under Philippine laws, obtain the necessary licenses from the concerned regulatory agencies, and must register the marketing material with SEC. However, there is no need to register if the activity will be undertaken by a third-party service provider as disclosed to SEC, but the CASP remains responsible for the provider’s marketing of crypto-assets or crypto-asset services and for its agent’s acts of distributing, and transacting with financial consumers for its crypto-asset or cryptoasset services.