BSP Warns Virtual Asset Companies vs Misuse Of Funds

BSP: “VASPs that facilitate the conversion or exchange of fiat currency to VA or vice versa are expected to maintain sufficient unencumbered liquid assets”

BSP – The Bangko Sentral ng Pilipinas recently warned all registered virtual asset service providers (VASPs) against misuse of funds.

Photo source: Manila Bulletin

In the wake of the collapse of FTX, the central bank has issued a memorandum reminding all VASPs not to engage in any business activities other than for the safekeeping of virtual assets.

Signed by BSP Deputy Governor Chuchi G. Fonacier last December 7 and released last December 9, the central bank said in its Memorandum No. M-2022-051 that the FTX bankruptcy is a stark example of emerging threats in the virtual asset world that affect practices and endanger the security and safety of customer funds.

Fonacier also said that all VASPs, particularly those providing safekeeping and administration services for virtual assets like VA custodian, should ensure that customer VAs are “not being used for any business activities other than for safekeeping on the customers’ behalf”.

In the wake of the FTX debacle, reports indicate that FTX allegedly misused customer assets to fund unauthorized business activities,” Fonacier said. “As a result, FTX suffered from liquidity issues, prompting the exchange to cease further customer withdrawals, and subsequently file for bankruptcy.

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VA custodians, according to Fonacier, are expected to ensure adequacy of reserves for virtual assets held in custody and to institute mechanisms in order to properly record and segregate customers’ virtual assets from their proprietary virtual assets.

Fonacier reminded virtual asset service providers to have “robust” risk management systems in order to manage their liquidity and their third-party and operational risks, among others.

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