PSEC Calls Gemini Derivatives An Unregistered Securities Product

The Philippines Securities and Exchange Commission (PSEC) has issued an advisory warning the public not to invest in Gemini’s Gemini Derivatives product. 

Gemini Derivatives is available to users on the crypto exchange’s new Foundation platform and was launched on the 1st of May, 2023. 

Philippines SEC Issues Warning

In its advisory, the Philippines Securities and Exchange Commission stated that Gemini’s newly launched derivatives platform had not obtained prior regulatory authorization to operate in the country. The country’s regulatory watchdog issued an official warning to the cryptocurrency exchange on the 18th of May. According to Philippine law, derivatives are considered as securities and must be registered with the Philippines Securities and Exchange Commission. In its statement, the regulatory authority stated that Gemini did not have the necessary authority or licensing to operate in the country. 

The Philippines Securities and Exchange Commission also outlined the punishment for breaching the rules governing the country’s securities regulations. According to the authorities, dealers, brokers, salespeople, or agents that promote or sell unregistered securities in the country face paying a fine of 5 million pesos ($89,286). Additionally, they also face a 21-year prison sentence. 

The Philippines Securities and Exchange warning also mentioned the complaints against Gemini’s Earn Program by the United States Securities and Exchange Commission and the Commodity Futures Trading Commission. The SEC had filed a complaint against the Earn Program in January. 

“Today’s charges build on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws. […] It’s not optional. It’s the law.”

New Platform, Same Headache 

Cryptocurrency exchange Gemini launched its non-US derivatives platform, called the Gemini Foundation, at the beginning of May. The announcement featured a long list of supported regions, including the Philippines. However, now regulatory authorities have claimed that the derivatives exchange does not have any legal right to operate in the country because it failed to secure regulatory approval for its products. The Philippines SEC further stated that Gemini was marketing derivatives, which are considered as securities in the Philippines. The Philippines SEC stated, 

“Gemini Trust Company LLC’s lack of prior registration with the Commission makes their activities of offering and/or selling securities in the form of derivatives illegal in violation of the provisions of the SRC.”

Authorities have also warned members of the public to avoid investing in the exchange and stop any ongoing investments until further notice. Gemini started the Gemini Foundation to avoid regulatory hurdles prevalent in the United States. However, this action by Philippine authorities shows that it could still face problems. 

Regulatory Uncertainty In The US 

Regulatory authorities in the United States of America have turned up the heat on Gemini in recent months. The United States Securities and Exchange Commission has argued that current securities laws are adequate for the crypto space, and new rules are unnecessary. However, the SEC has taken various anti-crypto positions and is embroiled in legal tangles with several crypto firms. 

As a result, many crypto firms operating in the US believe that moving away from growing regulatory uncertainty and pressures is the way to go. This has led to a considerable exodus of companies from the US, with several setting up non-US entities to continue global operations. Several alternatives have also emerged, with countries such as the United Arab Emirates and Portugal positioning themselves as crypto hubs.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.