

Update: August 2, 2018, SEC releases “Draft Rules on Initial Coin Offerings”.

Bitpinas.com. Manila. The Securities and Exchange Commission of the Philippines has released today its official advisory regarding Initial Coin Offerings (ICO).

Virtual Currencies

According to the SEC, some new virtual currencies (cryptocurrencies or digital currencies) can be classified as a security, based on the definition of what a security is in the country’s Securities Regulation Code (SRC).

Note the important word here is “some”. This means not all virtual currencies can be classified as a security. So what exactly falls into the definition of such negotiable instruments?

Full SEC Advisory

The text of the entire SEC Advisory on Initial Coin Offerings can be viewed on the SEC website here, or you can right-click the 2 images below. This article continues after the 2 images.

What kinds of cryptocurrency-related activities fall into “security”?

Securities can be a lot of things. As defined by Sec. 3.1 of the SRC, securities can be anything shares of stock, notes, options, trust certificates, and many other things.

Securities can also be investment contracts, which is a contract, transaction, or scheme wherein a person invests money in an enterprise and is led to expect (or promised that he will gain) profits primarily from the efforts of others.

Thus when a cryptocurrency is similar to any of the types of securities mentioned in the SRC, then, the SEC states that there is a possibility that it is really a security and must be registered with the SEC as such.

When a virtual currency is likewise analogous to any of the types of securities under Section 3.1 of the SRC, there is a strong possibility that the said virtual currency is a security under the jurisdiction of the SEC and has to be registered and necessary disclosures have to be made for the protection of the investing public.

ICOs and Securities

As with the SECs interpretation of securities, it follows that Initial Coin Offerings are likewise a sale of securities. That means it falls under the jurisdiction of the SEC and must, therefore, be registered with the government agency.

What if I am an agent of ICO entities? What if I tell people to invest in ICOs?

SEC mentioned that if you act as a salesman, broker, dealer, or agent of ICO entities and participates in selling or convincing people to invest in the investment scheme, then you must register with the SEC, again pursuant to the SRC. Failure to do so may invite the law against you, be sanctioned, or penalized in accordance with a Supreme Court decision in 2014.

We encourage everyone to read the full 2-page SEC Advisory on ICOs here. 1st page, 2nd page.

SEC Advice to the Public

If a potential investment sounds too good to be true, or if you are pressured to act hastily, please exercise utmost caution and diligence and be wary of the risk that your investment might be lost.

Overall

While we are no legal experts here in BitPinas, the SEC advisory may obviously change the landscape of ICOs in the Philippines. While the BSP’s circular last year governs the “exchange” of cryptocurrency to Peso, the SEC ruling governs the 1) Peso to Coin exchange, 2) Coin to Coin exchange, and 3) other assets to coin exchange where it applies. The SEC now classifies ICOs as investment schemes, and we wonder how the existing players in the cryptocurrency landscape in the Philippines will react to this new development.

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