Asian countries and jurisdictions such as Thailand, Singapore, and Hong Kong have been actively developing regulations for cryptocurrencies and security tokens.
Thailand Has the Most Progressive Crypto Regulations
Regulators in Thailand have created the most well-defined guidelines for local exchanges, crypto assets, and security token offerings. The nation’s government released a Digital Asset Decree in May 2018, outlining the relevant requirements for local firms to provide crypto-related services.
The decree specifies rules and policies for transactions involving cryptocurrencies and digital tokens. It’s managed by Thailand’s Securities and Exchange Commission (SEC).
The Digital Asset decree covers primary issuance activities (like fundraising), as they may apply to token issuers, and secondary market activities (like trading), which may be applicable to token exchange and intermediaries involved in settling trades.
Additionally, the Thai government offers three different types of crypto-related licenses, including the Digital Asset Exchange License, Broker License, and Dealer License. These licenses outline the business activities that companies are allowed to carry out.
The exchange license applies to entities created for trading or exchanging crypto assets. The broker license is for individuals who offer services as a broker for trades involving digital assets. The dealer license is for professionals who provide services related to the exchange of cryptos, with their own account outside the digital currency exchange.
The Digital Asset Decree has also placed restrictions on token issuers, which requires that they be carried out via approved or licensed initial coin offering (ICO) platforms. Thailand’s authorities have also provided a list of acceptable cryptocurrencies that qualify as investments for ICOs, and may be paired or traded with other assets on exchanges. These include Bitcoin (BTC), Ether (ETH), XRP, Stellar (XLM).
As per the SEC’s guidelines, the Thai Ministry of Finance has approved three Digital Asset brokers licenses, one dealer permit, and three ICO platforms. The nation’s regulators are currently working on developing rules and policies for custody solutions for crypto assets.
At present, it’s unclear whether Thailand’s existing securities laws apply to cryptocurrencies, or if new regulations will be drafted for them.
Singapore’s Authorities Are Also Drafting Guidelines for Cryptocurrency Transactions
Singapore’s central bank, the Monetary Authority of Singapore, released various guidelines in November 2018, entitled “A Guide to Digital Token Offerings”. The document specifies which cryptos should be regulated under the nation’s Securities and Futures Act (SFA).
If the crypto tokens are to be traded in capital markets, and include products like securities or derivatives contracts, then they must be regulated by SFA’s rules. Singapore’s current licenses apply in these types of transactions. The applicable rules vary depending on the type of transactions carried out by businesses. For example, there are different rules for token issuers, exchanges, and financial advisors.
For instance, a security token issuer must have a Capital Markets Services (CMS) license for dealing in capital markets products. A crypto trading platform that handles security tokens must have a license to operate as an exchange or as an authorized market operator.
Notably, Singapore’s SFA only regulates crypto assets that qualify as capital markets products. Other digital tokens may be considered payment tokens (like BTC, ETH), and may be regulated under the Payment Services Act (PSA), which will be enacted in the coming months and will have a different type of licensing.
Singapore’s government is also working on custody solutions for cryptocurrencies.
In November 2018, the MAS issued a recognized market operator (RMO) license to 1exchange, the nation’s first private securities trading platform that supports digital token exchange. Singapore-based stock exchange, SGX has reportedly invested in 1exchange.
The MAS is working with IT firms in a regulatory sandbox environment, in order to determine what else needs to be done, and there will most likely be updates announced in the coming months.
Hong Kong’s Government Continues to Work on Crypto Regulations
Asia’s major financial hub Hong Kong has also been working on crypto regulations. The jurisdiction’s Securities and Futures Commission (SFC) issued a statement on ICOs in September 2017.
In November 2018, the SFC released a circular and a statement on the applicable regulations for digital asset portfolio managers, fund distributors, and exchange operators. The SFC uses the term “virtual asset” when referring to digital representations of value. Instead of calling them virtual assets, they may also be referred to as cryptocurrencies, crypto asset, or digital tokens.
The new guidelines are aimed at providing regulatory clarity for the management and investment of digital assets.
Hong Kong’s SFC published a “Statement on Security Token Offerings”, which served as a reminder to dealers that certain security tokens may be similar to traditional securities. However, certain exemptions may apply.
The new rules state that any individual who markets or sells security tokens in Hong Kong must be registered for Type 1 regulated activity, which involves dealing in securities, which is regulated under the Securities and Futures Ordinance (SFO).
Hong Kong is currently working on specific policies for regulating crypto exchange platforms. The nation’s SFC has called on exchange owners to participate in its regulatory sandbox, which will focus on determining the type of license to be issued to trading platforms.
Exchanges may be regulated by the SFC and would need SFO Type 1, which covers transactions involving securities; and Type 7 licenses for automated trading services licenses.
At present, custodial activities are not regulated by the nation’s SFC, however companies or entities serving as custodians have to operate as a Public Trust Company. Firms must also apply for the Trust or Company Service Provider (TCSP) license, which is issued by the country’s Companies Registry.