Virtual currencies must be registered — SEC

MANILA, Philippines — The Securities and Exchange Commission (SEC) said digital currency would be regulated like securities.

In an advisory, the SEC said a virtual currency follows the nature of security as defined under the Securities Regulation Code (SRC).

Under Section 3.1(b) of the SRC, a security includes an ‘investment contract” which means a “transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.”

“An investment contract is presumed to exist whenever a person seeks to use the money or property of others on the promise of profits,” the SEC said.

Virtual currency, which is rapidly becoming popular around the globe, refers to a digital representation of value issued and controlled by its developers.

 An initial coin offering (ICO), meanwhile, is the first sale and issuance of a new virtual currency to the public usually for the purpose of raising capital for start-up companies or funding independent projects.

In an ICO, a percentage of the total available virtual currency is sold to interested buyers in exchange for real currency, a virtual currency and another asset or security.

“When a virtual currency is analogous to any type of security 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,” the corporate regulator said.

Those who act as brokers and dealers of ICO entities must also register with the SEC.

The SEC issued the advisory after receiving reports that “certain companies, individuals or groups of persons are enticing the public, either through popular social media platforms or through their own independent website, to participate in so-called ICOs and to purchase virtual currencies.”

It advised the public to exercise caution against such offerings.

“If a promoter, issuer, broker or salesman guarantees returns, 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,” the SEC said.

The advisory also came after the launch of businessman Joseph Calata’s ICO through mobile app Krops.