Asia Crypto-Law Round Up

Asia Business Law Journal (ABLJ) has published a comprehensive article on the current state of crypto law in Asia.

Here, we provide a summary of the most salient point presented by ABLJ from each region.

Philippines

According to the International Monetary Fund (IMF), Global growth is expected to slow down somewhat in 2019 (from 3.6% to 3.3%), but in the Philippines, strong employment is contributing to strong domestic consumption rates, meaning growth is expected to top 6.4%.

Strong growth generally is expected to boost the country’s local crypto sector ABLJ writes:

“With a relatively robust economic growth, growth in the cryptocurrency business in the Philippines has also expanded. At the time of writing, there are already 41 licensed cryptocurrency businesses in the country, 31 of which have been given Financial Technology Solutions and Offshore Virtual Currency (FTSOVC) Licences by the Cagayan Economic Zone Authority (CEZA), and 10 having been given Certificates of Registration as Virtual Currency (VC) Exchange licences by the Bangko Sentral ng Pilipinas (BSP).”

Philippine SEC commissioner Ephyro Luis Amatong also announced during the recent Fintech Alliance’s Summit 2019 in Manila that his organization will release Rules on Initial Coin Offerings and Digital Asset and Token Offerings by the second quarter of 2019.

The Cagayan Economic Zone Authority (CEZA) has also adopted Rules on Digital Asset and Token Offerings (DATO rules), which, “…seek to regulate entities intending to offer digital assets to the public (issuers), as well as any digital asset agent, expert or relevant person.”

The DATO rules supplement Cagayan Special Economic Zone and Freeport (CSEZFP) Financial Technology Solutions and Freeport (CSEZFP) Financial Technology Solutions and Offshore Virtual Currency Business Rules and Regulations of 2018 (CEZA VC rules), and govern, “those licensed to do business in CSEZFP, which issue or propose to issue digital assets shall not be sold or offered for sale or distribution within the Philippines.”

The DATO rules also define “digital assets” as follows:

“…(T)hose that are uniquely identifiable electronic representations of value, property or chattel, the conferral, storage and transfer of which is recorded electronically, including by transmission of electronic information or adjustment of an electronic record, and which is any or a combination of virtual currency, asset token, or utility token.”

DATO rules also clarify that a digital asset is not: “(an) electronic representation of value that is part of an affinity or rewards programme, or (is) used in online games or gaming platforms.”

The section on DATO rules provided in the original article is quite detailed so please consult if for particulars.

South Korea

After an exuberant 2017 in which the Korean won was linked to 16% of all bitcoins traded, 2018 has been a relatively sobering year.

Crypto trading has reportedly “cooled” in Korea and a grey regulatory landscape is hindering full blown industry develoment, ABLJ writes.

ICOs remain banned in Korea:

“Despite its leading role in the digital currency markets, South Korea has not yet implemented formal regulatory and taxation measures for trading these currencies. In reaction to the speculative mania that swept Korea’s cryptocurrency market in 2017, South Korean regulatory authorities maintain their blanket ban on initial coin offerings (ICOs).”

Crypto down markets have also taken the heat off regulators there, ABLJ writes, and people seeking risk (ie. ICOs) are moving their money offshore. This is causing pain for the once-booming local sector:

“An increase in trading activity typically compels regulators to establish clear trading guidelines, but Korea’s digital currency market in 2018 was anything but bullish, with three of the “big four” Bitcoin exchanges all recording losses by the end of the year. With investors looking to take their digital assets to other jurisdictions (including offshore), the market has arguably seen better days.”

Despite recent drawbacks, writes ABLJ, there are signs regulators are working to draw up a framework, and tech-friendly South Korea, “…remains one of the world’s most significant markets for cryptocurrency and blockchain companies,” the journal writes.

It should be noted that Korea’s ultra-fast-growing crypto sector growth was also rife with scams and suffered particularly weak security, with 14 or 21 domestic crypto exchanges found in an audit to be, “vulnerable to hacking attacks at all times because of poor security…(due to) insufficient establishment and management of security systems such as basic PC and network security.”

But regulators have been working to clean up the sector and have banned anonymous trading as well as trades by foreigners and the underaged.

Crypto trading platforms have also reportedly been obligated to start sharing user transaction data with banks and so that banks can ensure bank accounts and crypto trading accounts bear matching surnames.

Korean banks have also been empowered to cease doing business with exchanges they suspect may be handling funds of suspicious origin.

With new rules being considered now by various Korean government departments, ABLJ believes the 2019 will be a pivotal year for the crypto sector in Korea.

Taiwan

According to ABLJ, legal matters crypto in Taiwan are similar to those in the US: the key issue is whether or not a “digital asset,” STO, IEO or other tradable tokens can be considered a security under current rules.

And like the US, generally speaking:

“When an ICO token has the nature of securities, its offering will be deemed a securities offering, and thus subject to the SEA.”

As well:

“In case any misrepresentations or promises of unreasonably high returns are used by the issuer of virtual currencies or an ICO to attract investors, the issuer would be deemed as committing fraud or illegal fundraising.”

Businesses looking to create a legitimate STO (security token) also do not have the clear go ahead yet in Taiwan:

“(A)t the time of writing this article, no regulatory process is available in Taiwan for prior approval or registration (of an STO).”

Still, industry lobbying appears to have induced the Taiwan FSCto announce: “…that it is planning to launch a set of new regulations for the issuing of security tokens to fill up the void. For this purpose, the FSC held a public hearing on 12 April 2019…”

The Taiwan FSC has now tasked itself with establishing rules to define STOs as securities, with setting an upper limit on how much an STO issuer can raise, with setting qualifications for buyers and with working with the Taipei Exchange to determine required documentation and disclosures needed from STO projects.

Operators of security token trading platforms may also have to keep less capital on hand than traditional securities exchanges if they only facilitate trades of STOs.

As well, Taiwan’s “latest amended Money Laundry Control Act (AML Act)…which took effect on 7 November 2018, has brought the cryptocurrency platform operators into the anti-money laundering regulatory regime.”

Thailand

Thailand has made a great leap towards mobile banking and payments in recent years and more than 300 branches of the country’s top five banks have closed down as a result. 

Established banks have been forced adjustments to a digitally-bank Thai populace:

“Now, all Thai commercial banks have waived all bank transfer fees, and have inevitably been forced to improve their technologies in order to compete with fast-growing e-payment applications.”

The Bank of Thailand has reportedly been a major player in the changing landscape, and has been “…pushing forward the development of electronic payment systems as part of the National e-payment Master Plan, which aims to promote the use of e-payments in all sectors, for example, the Image Cheque Clearing and Archive System (ICAS) and Bahtnet, which are categorized as highly important payment systems, together with the introduction of PromptPay.”

PromptPay is a government payments network first implemented for the transfer of welfare payments, but the Thai Revenue Department has also been using it to pay out tax refunds since 2017.

Given the payments landscape in Thailand, writes the ABLJ, “the distributed ledger technology commonly known as blockchain, and digital assets such as cryptocurrencies and digital tokens, inundated Thailand so rapidly that the Securities Exchange of Thailand (SEC) had to issue an alert note on its website to warn investors of the risks in entering into any transaction with unauthorized operators.”

So far, only four digital asset businesses have been licensed in Thailand: Bitkub Online; Bitcoin Exchange; Satang Corporation; Pro and Coins TH.

These businesses operate under rules established by the “Royal Decree on Digital Assets Business” (2018).

To be licensed under the decree, a would-be digital asset provider must already be established in Thailand, must possess a solid business plan as well as comprehensive cyber/IT security systems that accord with SEC rules.

Said businesses must also conduct AML/anti-terrorist finance due dilligence.

ICOs can be issued in Thailand if they go through a qualified and licensed portal held responsible for conducting due diligence on the project.

While the Thai SEC previously allowed seven cryptocurrencies to be used in the issuing and sale of an ICO, three have been removed from the list due to a lack of liquidity.

Remaining permitted cryptos for conducting an ICO in Thailand are Bitcoin (BTC); ethereum (ETH); ripple (XRP); and stellar (XLM).

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