While participants in StratBox have greater flexibility to trial their offerings and even receive potential exemptions or modifications to licensing and compliance requirements during their participation, this is by no means a regulatory free-for-all. Instead, to ensure a successful outcome for the StratBox initiative, the SEC will need to implement rigorous oversight, provide transparency, and engage in iterative rulemaking based on insights gained from real-world results.
Thankfully, as a relative latecomer to the space, the Philippines SEC has other examples to learn from. The UK’s Financial Conduct Authority (FCA) and Singapore’s MAS are two such examples of regulatory bodies that have run multiple regulatory sandboxes with largely positive outcomes. The StratBox initiative needs to strive to strike the delicate balance of encouraging Fintech innovation while upholding the safeguards that underpin society’s trust in financial markets.
Among the areas of exploration in StratBox, one of the more cutting-edge ideas is the possibility of letting crypto exchanges deal with tokenized securities, such as stocks and bonds. Tokenization is increasingly being explored by regulators worldwide, even in more risk-averse jurisdictions, as it presents a pragmatic progression in the operations of financial markets rather than a radical departure from them. The benefits of tokenization include the potential to lower barriers for retail investors through fractional ownership, reduce settlement times and increase access to global investment opportunities.
Nevertheless, the operating mechanism of crypto exchanges is quite unlike that of traditional exchanges, which warrants a heightened level of caution from both regulators and investors. Traditional exchanges usually separate critical functions such as trading, custody, and settlement across different legal entities which helps to reduce the risk of conflicts of interest, fraud and system failures. Crypto exchanges, on the contrary, typically handle all these operations under one roof, which has the potential to create blind spots and hidden risks. Such risks are magnified in emerging markets such as the Philippines, with its fledgling regulatory infrastructure and low levels of public awareness.
Then again, this is exactly where the StratBox can be an effective platform to explore unchartered waters in a safe and supervised environment, where key insights from the initiative can help the SEC to shape a detailed legal framework for tokenized financial assets. In this sense, the measure of success of the sandbox will be how quickly the Philippines SEC can learn and adapt, and how clearly it defines the boundaries and rules of engagement for StratBox participants.