Changes Afoot for Philippine Crypto-Friendly Economic Zone


The special economic zone in the Philippines known for its crypto friendliness is undergoing some changes. Government-owned Cagayan Economic Zone Authority (Ceza) is investigating a case involving one of its licensed crypto exchanges after a tip from the Chinese government. The authority has also issued new directives to all of its licensees, including 40 crypto exchange operators.

Also read: Philippines Increasingly Crypto-Friendly

Better Due Diligence, License Suspensions

A government-owned and controlled corporation, Ceza oversees the development of the Cagayan Special Economic Zone and Freeport, with the aim to turn the area into the country’s cryptocurrency hub. While in the process of building what it calls the “Crypto Valley of Asia,” Ceza has been attracting many companies to set up offshore crypto exchanges in the zone.

Local news agency ABS-CBN reported Tuesday that 40 firms have been licensed by Ceza to operate crypto exchanges, but only three are fully operational as of September. They are Golden Millennial Quickpay Inc. Ltd., Liannet Technology Ltd., and Asia Premier International Ltd.

Changes Afoot for Philippine Crypto-Friendly Economic Zone

The operations of all three aforementioned licensees are temporarily suspended as Ceza improves its due diligence. The move follows a scam uncovered last week, which allegedly involved one of its licensees. Ceza spokesperson Mike David reiterated to the news outlet that their operations are suspended for “due diligence.”

In Tuesday’s press release, Ceza explained that the three companies have been “authorized to temporarily operate within a short incubation period in Metro Manila … Pending the completion of the facilities in Sta. Ana, Cagayan, where development works have already started this year.” Nonetheless, Administrator and CEO Raul Lambino clarified that they are still required to run all trading transactions through LR Data, a cyberpark in Cagayan, according to the Inquirer publication.

Scam Uncovered, Tip From Chinese Government

Golden Millennial Quickpay’s license was suspended on Sept. 12 for its alleged involvement in illegal crypto operations conducted by its authorized service provider Grapefruit Service Inc., Ceza detailed on Tuesday. The suspension extends to all of the company’s related licensees, including Grapefruit, pending a full investigation by Ceza and all appropriate law and regulatory enforcement agencies.

Grapefruit’s office in Pasig City, Metro Manila, was raided on Sept. 11 by a number of Philippine authorities, ABS-CBN reported. The raid was carried out by agents of the Bureau of Immigration’s fugitive search unit, the Presidential Anti-Corruption Commission, and the Philippine National Police’s integrity monitoring and enforcement group. They were accompanied by representatives of the Chinese Ministry of Public Security.

Changes Afoot for Philippine Crypto-Friendly Economic Zone

Grapefruit’s 277 employees were arrested “on suspicion of using cryptocurrency operations to dupe unsuspecting would-be investors back in China,” the news outlet noted, adding that all are Chinese nationals. Agence France-Presse reported that the firm’s operations have cost victims in China approximately 100 million yuan (~$14 million).

Lambino reportedly told radio DZMM that the firm failed to register with Ceza two floors of its three-storey office and some 100 employees, four of whom are wanted by Chinese authorities for previous charges. Documents obtained by the Inquirer show that all 277 employees had Ceza visas which carry certain restrictions. In addition, the firm’s filing with the country’s Securities and Exchange Commission expressly prohibits it “from undertaking activities as a securities broker or dealer, or as an investment adviser or investment company,” the news outlet described, noting that it is also “barred from operating on fiat money or virtual currency exchange.”

Jaime Hermo Morente, Commissioner of the Philippine Bureau of Immigration, said the raid was prompted by a tip from the Chinese Embassy. The arrested employees will be deported since the Chinese government has canceled their passports, making them illegal workers in the Philippines, he added.

Changes Afoot for Philippine Crypto-Friendly Economic Zone

David confirmed that Golden Millennial Quickpay faces a 90-day suspension and may lose its license if found guilty of wrongdoing, ABS-CBN conveyed. Meanwhile, Ceza maintains that it is certain no Filipino citizen has been defrauded by this scheme.

New Directives for All Licensees

Ceza offers two types of “Offshore Virtual Currency Exchange” licenses: the principal license and the regular license. The former allows licensees to conduct offshore fintech and crypto exchange activities, while the latter restricts them to only crypto exchange activities. According to the Philippine Daily Inquirer, there are 25 principal licensees, which include the three suspended companies.

The authority clarified Tuesday that “Offshore virtual currency exchanges are those which are registered in a jurisdiction other than the Philippines that do not transact with any Filipino citizen or any person located in the Philippines,” elaborating:

Ceza does not allow its licensees to conduct business activities or offshore virtual currency exchanges in any foreign country like China that prohibits such business activity.

In the first week of September, Ceza “issued directives to all of its licensees for complete reports of legal, regulatory, and ethical compliance practices and standards — specifically to those operating offshore virtual currency exchanges,” its press release states. These reports are under review and will form the basis for any internal investigation. Ceza emphasized that any violations will be subject to all applicable sanctions under its rules and Philippine laws. “If need be, adjustment of regulatory standards and protocols will be made to better enable that enforcement and application of the rules of law and fair commerce.”

Companies wanting to do business with Filipinos or deal in the Philippine peso need to register with the country’s central bank, Bangko Sentral ng Pilipinas (BSP), which has registered 13 crypto exchanges so far.

What do you think of Ceza’s efforts? Do you think the Cagayan Special Economic Zone and Freeport will become a major crypto hub in Asia? Let us know in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any products, services, or companies. does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Images courtesy of Shutterstock and Ceza.

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European Countries Step Up Response to Facebook’s Libra


The European Central Bank (ECB) and a number of countries in the region have stepped up their efforts in response to Facebook’s Libra, which has revived a competing ECB project for instant payments. As Facebook engages Switzerland’s financial regulator, the ECB clarifies how Libra can be regulated under EU laws.

Also read: India’s Popular ‘Who Wants to Be a Millionaire’ Show Gives Crypto a Boost

A Wake-Up Call and ECB’s Project Revived

Facebook’s proposed Libra digital currency has given governments worldwide a run for their money. European Central Bank board member Benoit Coeure calls Libra “a wake-up call,” after discussing it at last week’s meeting of eurozone finance ministers in Helsinki. Amid concerns over a sovereign threat, 26 regulators worldwide, including the Bank of England and the U.S. Federal Reserve, reportedly met with representatives of Libra in Basel on Monday to discuss the scope and design of Libra.

European Countries Step Up Their Responses to Facebook's Libra

Coeure told the press Friday that Libra had revived efforts of an ECB-backed project for real-time payments in the eurozone, the Target Instant Payment Settlement (TIPS). The project could allow consumers to use electronic cash, directly deposited at the ECB without the need for bank accounts, financial intermediaries or clearing counterparties. Just like with Facebook’s plans, financial intermediaries will be unnecessary in this new ECB system. “TIPS offers final and irrevocable settlement of instant payments in euro, at any time of day and on any day of the year,” the ECB described.

The project was launched last year and could last months or even years, Coeure revealed, adding that the technical feasibility remains to be seen and opposition from banks is likely. In addition, “We also need to step up our thinking on a central bank digital currency,” he suggested. France’s Finance Minister Bruno Le Maire said last week that the European Union should create a common set of rules for cryptocurrencies to counter the risks posed by Libra.

Strong Opposition by France and Germany

France and Germany have reportedly agreed to block Libra due to the risks the digital currency could pose to their financial sectors, the French finance ministry said. The two countries jointly issued a statement Friday, stating:

France and Germany consider that the Libra project, as set out in Facebook’s blueprint, fails to convince that those risks will be properly addressed … We believe that no private entity can claim monetary power, which is inherent to the sovereignty of nations.

European Countries Step Up Their Responses to Facebook's Libra

Le Maire believes that Libra should not be allowed to operate in Europe while concerns persist about sovereignty and persistent financial risks. “We encourage European central banks to accelerate work on issues around possible public digital currency solutions,” he added in the joint statement with Germany’s Finance Minister Olaf Scholz. The two countries further called on banks to work on improving European payment systems at the European level.

Swiss License for Libra, New Stablecoin Guidance

Meanwhile, the Libra Association has engaged the Swiss Financial Market Supervisory Authority (Finma). The regulator has confirmed that the association has requested an assessment of how Finma would classify its planned Libra project including the issuance of a stablecoin under Swiss supervisory law.

Finma revealed that, based on information provided so far, such a project would fall under financial market infrastructure regulation and would require its payment system license, under the Financial Market Infrastructure Act (FMIA). The requirements under the Principles for Financial Market Infrastructures would also apply to the management of cyber risks. Swiss payment systems are subject to the Anti-Money Laundering Act.

European Countries Step Up Their Responses to Facebook's Libra

Moreover, the FMIA sets out additional requirements for services that increase the risks of a payment system. “Due to the issuance of Libra payment tokens, the services planned by the Libra project would clearly go beyond those of a pure payment system and therefore be subject to such additional requirements,” the regulator clarified, adding:

A necessary condition for being granted a licence as a payment system would be that the returns and risks associated with the management of the reserve were borne entirely by the Libra Association and not – as in the case of a fund provider – by the ‘stablecoin’ holders.

In addition, Finma has updated its stablecoin guidance, which supplements its existing guidelines for initial coin offerings (ICOs). The regulator has acknowledged the rising number of stablecoin projects since mid-2018.

Finma detailed that the requirements for stablecoins may differ based on which assets they are backed by — such as currencies, commodities, real estate or securities — and the legal rights of its holders. “Money laundering, securities trading, banking, fund management and financial infrastructure regulation can all be of relevance,” Finma elaborated.

ECB Clarifies Libra’s Regulatory Challenges

European Central Bank executive board member Yves Mersch outlined the ECB’s approach to regulating Libra earlier this month. He described some “extremely concerning” differences between Libra and other cryptocurrencies. Firstly, he explained that “Libra’s ecosystem is not only complex, it is actually cartel-like,” citing several key areas that the Libra Association will have control over the coin’s functionalities. Unlike the decentralized and disintermediary nature of cryptocurrencies, he said that “similarly to public money Libra will actually be highly centralized, with Facebook and its partners acting as quasi-sovereign issuers of currency.”

European Countries Step Up Their Responses to Facebook's Libra
Yves Mersch

Mersch raised several concerns regarding Libra such as its lack of a global lender of last resort and the limited liability of the Libra Association members. It is also devoid of the equivalent of a deposit guarantee scheme to protect its holders’ interests during a crisis, the executive detailed. He further pointed out that “the fact that Libra is backed by a basket of sovereign currency-denominated assets appears to defeat the very purpose of its issuance as a private currency.” Mersch then proceeded to outline some legal and regulatory challenges of Libra:

The first challenge concerns Libra’s fundamental legal nature. The choice is, essentially, whether to treat Libra as e-money, as a financial instrument or as a virtual currency.

In his view, Libra does not appear to qualify as e-money, as it does not embody a claim of its holders against the Libra Association. The second option is to treat it as a transferable security or a different type of financial instrument, which means that both the Libra Association and any entities providing investment services through Libra coins would fall within the remit of the Markets in Financial Instruments Directive. Lastly, if it were to qualify as a virtual currency then both Calibra and its authorized resellers would become subject to the obligations and registration requirements under the Anti-Money Laundering Directive.

European Countries Step Up Their Responses to Facebook's Libra

Another challenge is to ensure that the relevant EU and member state regulatory and supervisory authorities can assert jurisdiction over Libra and its network, Mersch conveyed, adding that there is also the need for cross-border cooperation and coordination. “Because Libra will be used across borders, it is a matter of international interest.” He elaborated:

Its global nature would also call for a global regulatory and supervisory response to avoid regulatory arbitrage, ensure consistency of outcomes and guarantee the efficiency of public policy responses to Libra.

Mersch pointed out the joint efforts by the global community to mitigate risks associated with Libra, including efforts by the G7 countries, the G20 countries, and the Financial Stability Board (FSB). In its recently published report on how Libra could disrupt the financial system, the European Parliament wrote that “an international agreement is needed on harmonizing existing rules for crypto tokens.” The legislative body of the European Union believes that “Co-regulatory oversight of the Libra operation scheme by both state-operators and stakeholders would be needed to prevent money laundering, illicit transactions and consumer fraud.”

What do you think of how the ECB and European countries are responding to Facebook’s Libra? Let us know in the comments section below.

Images courtesy of Shutterstock.

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