CEZA Financial Technology Solutions and Offshore Virtual Currency Business Rules and

Regulations of 2018 (CEZA FTSOVCBRR of 2018)

There are two kinds of FTSOVC Licenses:

1. Financial Technology
2. Offshore Virtual Currency

1. FINANCIAL TECHNOLOGY

WHAT IS FINANCIAL TECHNOLOGY

Financial technology, often shortened to fintech, is the technology and innovation that aims to
compete with traditional financial methods in the delivery of financial services. It is an emerging
industry that uses technology to improve activities in finance. The use of smartphones for mobile
banking, investing services and cryptocurrency are examples of technologies aiming to make
financial services more accessible to the general public. Financial technology companies consist
of both startups and established financial institutions and technology companies trying to
replace or enhance the usage of financial services provided by existing financial companies.
Financial technology has also been used to automate insurance, trading, banking services, and
risk management.

CRYPTOCURRENCY

A cryptocurrency is a decentralized digital currency which uses encryption - the process of

converting data into code - to generate units of currency and validate transactions independent
of a central bank or government.

Bitcoin and ether are the most common form of digital currencies. But there are other forms of
virtual cash, such as Litecoin, Ripple and Dash.

BITCOIN

‘Bitcoin’ – a term we’re more used to hearing even in mainstream finance – is the first and one
of the most prominent cryptocurrencies used by traders in the world of fintech.

It all began when an unknown person(s), under the pseudonym Satoshi Nakamoto, designed
bitcoin as a peer-to-peer (P2P) payment network without the need for governance by any central
authority.

In an introductory white paper introducing the virtual currency, Nakamoto defined bitcoin as:
“A purely peer-to-peer version of electronic cash (which) would allow online payments to be sent
directly from one party to another without going through a financial institution.”

DISTRIBUTED LEDGER

A distributed ledger is a database that exists across several locations or among multiple
participants. By contrast, most companies currently use a centralised database that lives in a
fixed location. A centralised database essentially has a single point of failure.

However, a distributed ledger is decentralized to eliminate the need for a central authority or
intermediary to process, validate or authenticate transactions. Enterprises use distributed ledger
technology to process, validate or authenticate transactions or other types of data exchanges.
Typically, these records are only ever stored in the ledger when the consensus has been reached
by the parties involved.

All files in the distributed ledger are then timestamped and given a unique cryptographic
signature. All of the participants on the distributed ledger can view all of the records in question.
The technology provides a verifiable and auditable history of all information stored on that
particular dataset.

BLOCKCHAIN

Blockchain is a form of distributed ledger technology (DLT). This means that it maintains records
of all cryptocurrency transactions on a distributed network of computers, but has no central
ledger.

It secures the data through encrypted ‘blocks’.

Various blockchain experts believe the technology can provide transparency for a multitude of
different industries, not just the financial services.

The original blockchain network was created by bitcoin-founder Nakamoto to serve as the public
ledger for all bitcoin transactions.

REGTECH

Regulatory technology (regtech) is technology which helps firms working in the financial services
industry meet financial compliance rules.

One of the main priorities of regtech is automating and digitizing Anti-Money Laundering (AML)
rules which aim to reduce illegally obtained income, and Know Your Customer (KYC) processes
which identify and verify the clients of financial institutions to prevent fraud.

2. OFFSHORE CRYPTOCURRENCY EXCHANGE LICENSE

WHAT IS OFFSHORE CRYPTOCURRENCY EXCHANGE LICENSE?

The Offshore Cryptocurrency Exchange License, or “Financial Technology Solutions and Offshore
Virtual Currency License” (FTSOVC License) is granted to companies which will be allowed to set
up back offices of their virtual currency exchange or crypto and blockchain business in the
Cagayan Economic Zone, thereby becoming a locator in the zone. This is all in line with the
economic zone’s vision of turning Cagayan into a financial technology, blockchain, and crypto
hub.

The license allows these foreign investments to run the business in the Philippines but must
only service users from outside the country. This license allows the company to do crypto to
crypto transactions but does not allow the company to facilitate crypto to fiat transactions
as that is a separate license from the Bangko Sentral ng Pilipinas (BSP).

BSP Circular 944 on virtual currency exchanges only covers crypto-to-fiat conversion activities
and vice versa. Fiat currency refers to government-issued currency that is designated as legal
tender in its country of issuance through government decree, regulation, or law;