BSP warns public vs ‘pyramid’ schemes

The Bangko Sentral ng Pilipinas has warned the public against investing in “pyramid” schemes involving virtual currencies (VCs), which are seen as “highly speculative and risky.”

“With the recent price surge of VCs such as bitcoins, the BSP has observed that an increasing number of individuals or entities may be tempted to ‘invest’ in VC pyramid schemes disguised as initial coin offerings (ICOs) or VC investment products. The public is therefore advised to exercise caution regarding the acquisition, possession, trading of VCs or dealing with VC-related offers,” the BSP said in an advisory.

“Unlike stocks or debt issues, VCs are not backed by any company or commodity and the price is purely dependent on market demand and supply. As such, investing in VCs presents a highly speculative and risky undertaking which might result into huge financial losses,” the BSP pointed out.

As such, the BSP advised existing as well as prospective VC users to deal only with BSP-registered VC exchanges and maintain only a sufficient amount of VCs enough to address transaction requirements.

Also, VC users should properly secure their VC holdings and observe security tips to protect the confidentiality and integrity of personal information and transaction details, the BSP added.

Specifically, the BSP said VC users must set up and use a dedicated e-mail account; keep their VC-related e-mail account to themselves; set a strong password; observe basic internet security; subscribe to multifactor authentication provided by the VC wallet provider as well as separate their funds and use cold storage.

“VCs are seemingly gaining momentum in terms of usage as a medium for payment and remittances in the country. This is largely attributed to their ability to facilitate the movement of funds at a much faster, cheaper and convenient way. While recognizing the potential benefits, the BSP is equally cognizant of the attendant risks, particularly, their propensity to be used in illicit activities such as money-laundering and terrorist financing,” the BSP noted.

“Following the warning advisory issued by the BSP in March 2014, a formal regulatory approach was adopted through the issuance of Circular No. 944 dated Feb. 6, 2017. Under the issuance, VC exchanges or businesses engaged in the exchange of VCs for equivalent fiat money in the Philippines, are required to register with the BSP as remittance and transfer companies. In view thereof, BSP-registered VC exchanges are now required to put in place adequate safeguards to address the risks associated with VCs such as basic controls on anti-money laundering and terrorist financing, technology risk management and consumer protection,” according to the BSP.