The Philippine Securities and Exchange Commission (SEC) said participation in its regulatory sandbox neither spares companies from penalties for securities-law violations nor guarantees eventual approval, as the regulator defended its approach to testing financial innovations amid questions over Binance-linked activity.

"I just want to make it clear that being in the sandbox does not cure the penalties that will be imposed on a company that had committed violations against the Securities Regulation Code," SEC Commissioner Rogelio V. Quevedo said at a press conference on Monday. "So, being in the sandbox is not an excuse or is not simply a highway to being approved already by the SEC. It's just there so that the SEC can properly evaluate," he added.

Regulatory sandboxes have become a standard tool for financial watchdogs since the UK's Financial Conduct Authority pioneered the model in 2016, with regulators including Singapore's Monetary Authority adopting similar programs that let firms test new products under supervision while the rules governing them are assessed.

The comments came amid questions over the SEC's approval of an entity's admission into its Strategic Sandbox and the role of Binance in the activity. The activity involves BlockShoals Technologies, Inc., a Philippine-incorporated financial technology company approved by the SEC to operate as a Crypto Asset Intermediary under its Strategic Sandbox framework. BlockShoals is the local entity through which Binance products and services are made available to users in the Philippines. The SEC had earlier clarified that the initial integration period involving BlockShoals was not the start of public trading.

Binance, one of the world's largest crypto exchanges by trading volume, pleaded guilty in the United States in November 2023 to anti-money-laundering and sanctions violations and agreed to pay roughly $4.3 billion in penalties, and it has since worked to secure registrations in multiple jurisdictions. In the Philippines, the SEC has previously issued public advisories warning that Binance was not registered to operate in the country, while the Bangko Sentral ng Pilipinas in 2024 announced a three-year pause on accepting new virtual asset service provider license applications. The Philippines has consistently ranked among the top markets in Chainalysis' Global Crypto Adoption Index, which tracks grassroots cryptocurrency usage.

Mr. Quevedo said the regulator would ensure that sandbox testing does not expose the public to potential abuse.

"I can also say that to conduct testing, I cannot agree that we will open the system because abuses might be committed while it is being tested. So, we will make sure that we will not open a system which can be abused to abuse the public. So, that's clear," he said.

"The sandbox is not an excuse to get on the road to approval by the SEC. Hindi yung porque nasa Sandbox ka tuloy tuloy ka na sa approval ng SEC" (Just because you are in the sandbox does not mean you automatically proceed to SEC approval). "Marami pang dadaanan yan" (There are still many steps to go through), he added.

SEC Chairperson Francisco Ed. Lim, meanwhile, said the regulator should remain open to new financial technologies while subjecting them to appropriate testing and due diligence.

"We should not close our minds to innovation. In fact, my principle is we do not approve innovation only because there is an issue. Neither do we reject it because it is unfamiliar," Mr. Lim said. "I think we're in the midst of global innovation," he added.

Mr. Lim said admission to the sandbox does not necessarily mean a participant will eventually secure approval from the regulator.

"Once they [are] admitted to the sandbox, it may or may not happen, diba?" (right?) "But we have to test. Titignan namin data (we will look at the data), Titignan namin appropriate regulation (we will look at the appropriate regulation)," he said.

The sandbox, he said, allows the SEC to examine data and determine the appropriate regulatory framework before deciding whether an innovation should be allowed to proceed.

Mr. Lim said several companies have applied to enter the SEC's sandbox program, and he noted that sandbox processes can take considerable time even in more developed markets.

"In fact, our survey, even in markets like Singapore and others, it takes quite a while, around 2 years before that it's in the sandbox," he said.

Mr. Lim also floated share tokenization as another financial innovation that the SEC could explore to broaden market participation.

"Isa pang idea ko" (Another idea I have), "why don't we tokenize our shares of stock? That's an innovation. Tokenization," he said.

He said tokenization could allow more investors to participate in shares with relatively high values.

"That can generate more market participants. But let's keep it open to innovation," Mr. Lim said. — Alexandria Grace C. Magno