Coins.ph is the Philippines’ largest cryptocurrency exchange platform. Recently, it faced allegations that its operations had been tied with illegal offshore gambling activities—where it is alleged that it served said activities. Coins.ph replied that it had not knowingly served these activities.
Policies Require Institutions to Police Transactions
Under the Manual of Regulations for Non-Banking Financial Institutions (MORNBFI) issued by the Bangko Sentral ng Pilipinas, institutions must be proactive in:
“Reporting suspicious, unauthorized, or fraudulent transactions promptly to the respective BSFIs and fully cooperating with the BSFIs’ investigation and resolution process … an attempt to fraudulently transfer funds involving large sums of money requires immediate notification to the Bangko Sentral [and that institutions] shall implement a fraud management system (FMS) for monitoring and flagging suspicious and fraudulent transactions.”
Ignorance is Not Innocence. Under the Law, it is Sanctionable. Nor is being BSP-Licensed.
Thus, it is the law and policy that financial institutions know of, actively create systems, and prevent (and report) any and all suspicious or illegal transactions. BSP also ordered supervised institutions to remove direct gambling access from electronic wallet applications.
By this measure, Coins.ph’s argument that it had not willingly known the service of illegal or fraudulent activities does not exclude it from liability of the law. Under the rules and policies of the Bangko Sentral ng Pilipinas, it sanctions institutions in violation of this—though the revocation of the license remains to be seen. Another argument made by Coins.ph is that it is licensed by the Bangko Sentral ng Pilipinas. This does not excuse it from liability; rather, it is tethered to the laws of the Bangko Sentral ng Pilipinas themselves and are mandated to proactively follow its policies, rules and regulations.
Who Oversees Suspicious Transactions? What are their Responsibilities?
The Anti-Money Laundering and Compliance department of a non-banking financial institution serves as the first line of defense in flagging suspicious activities. There are many indicators that necessitate flagging: high velocity of transfers, withdrawals of more than a prescribed account, or even transactions that may be suspicious. The department shall then submit a suspicious transactions report (STR) to the concerned governing bodies. It shall also raise it to upper management for appropriate action.
Coins.ph has seen departures of several key figures. Departures from the company’s Compliance department include former chief compliance officer Lexi Herrera, Anti-Money Laundering transaction monitoring head Chris Beaño, and Money Laundering reporting officer Irish Calagui. This fuels the speculation of those who are wary of the institution’s activities.
Key Questions for the Coins.ph Controversy
This said, caution must be taken in asserting a preemptive conclusion to Coins.ph. The factors that may affect the outcome are as follows:
- Did Coins.ph really service offshore gambling activities? If so;
- Did the company overlook (willingly or otherwise) the conduction of these activities?
- Did Coins.ph have a robust enough Anti-Money Laundering and Compliance Department?
- Has its department seen other suspicious activities that have yet to be reported; or are there cases in the past where they have underperformed flagging activities?
- What will be the ruling of the BSP?
These are the crucial questions one must ask in assessing the situation of Coins.ph. Its counterargument is not substantive; again, not knowing suspicious transactions, by law, does not preclude a company from liability. Rather, it is the opposite. However, the allegations of activities must be on solid foundations before a ruling is to be made. This is what the BSP and other governing bodies are investigating.
Importance of Coins.ph in the Philippine Context
Coins.ph controls approximately 80% of Philippine Peso-to-stablecoin liquidity. Thus, regulatory action against the exchange could affect an important channel for cryptocurrency transactions. If the company is sanctioned, restrictive penalties could affect users. If the license is revoked, the platform sees itself closing after being the top local crypto-exchange platform. This follows the aftermath of the parent company, and consequently, Coins.ph, being barred from accepting cash-ins through Instapay and PesoNet.
Possible Outcomes: Frozen Assets, Withdrawal Freeze, Public Confidence
If Coins.ph has its license revoked, this may lead to a shutdown of services. Customers may run towards the gates to withdraw, forcing a liquidity crisis for the company. The exact liquidity ratio of Coins.ph is not widely reported. Should the worst happen, clients may face a freeze in outgoing transactions. Moreover, cryptocurrency exchange platforms are not insured, unlike traditional banks.
Nevertheless, public confidence in the company has gone down. Amidst the Instapay and PesoNet shutdown and the recent offshore gambling controversy, questions have been raised by analysts and customers alike—one of which is: is Coins.ph still trustworthy?
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