The laws and regulations of cryptocurrency in Asia. The region has always been technologically advanced, and this trend has been confirmed by the rapid adoption of cryptocurrency and blockchain. With nearly half of all global crypto trades taking place in Asia, regulators had no choice but to pay attention, owing to the growing number of companies offering crypto-related services.
Cryptocurrency In Asia: The Adequate Laws And Regulations Of Cryptocurrency In Asia
Most Asian countries, in general, recognize the benefits of cryptocurrency adoption, such as low transaction costs, particularly for remittances, and the incorporation of blockchain technology into their public services.
They are concerned about the implications of cryptocurrency for money laundering and terrorism financing, and they want more stringent rules to protect customers from speculative trading and businesses from risky financial investments.
Many countries have been caught off guard by the rapid rise of cryptocurrencies. Some have only recently begun a regulatory approach to cryptocurrencies, whereas others have yet to enact clear legislation.
The cryptocurrency regulations in China. Although domestic cryptocurrency exchanges are under a blanket ban in China, workarounds are possible using foreign platforms and websites. Despite the near-comprehensive prohibition by China cryptocurrency regulation to crypto trading and related services, the law in China currently still permits crypto mining activities.
While a ban on mining had been considered in 2019, the government reconfirmed that it would remain legal but would be increasingly subject to global geopolitical sanctions and export control implications.
Previously China’s central bank announced that all transactions of crypto-currencies are illegal, effectively banning digital tokens such as Bitcoin. “Virtual currency-related activities are illegal financial activities,” the People’s Bank of China said, warning it “seriously endangers the safety of people’s assets.” China is one of the world’s largest cryptocurrency markets.
Fluctuations there often impact the global price of crypto-currencies. The cost of Bitcoin fell in the wake of the Chinese announcement. It is the latest in China’s national crackdown on what it sees as a volatile, speculative investment and a way to launder money at worst. Trading in crypto-currencies has officially been banned in China since 2019 but found that it continued online through foreign exchanges.
In China, a general approach to the legal regulation of cryptocurrency transactions has not been worked out yet. The current Chinese legislation does not contain any special rules for the taxation of virtual currency and transactions with it. At the same time, in the announcement of the National Bank of 2013, cryptocurrency is defined as a virtual commodity, not a currency. It may be taxed with the value-added tax, and income and profit in the cryptocurrency are subject to a corporate tax, individual income tax, and capital gains tax.
The People’s Bank of China or PBOC banned financial institutions from handling Bitcoin transactions in 2013 and domestic cryptocurrency exchanges in 2017. China does not consider cryptocurrencies legal tender, and the country has a global reputation for harsh cryptocurrency regulations. There’s no indication that China intends to lift or loosen its cryptocurrency ban anytime soon. However, recent statements by government officials endorsing blockchain technology and the continued legal status of crypto mining have led many to speculate that China intends to be a leader in that space.
Under a 2020 amendment to China’s Civil Code, the government ruled that state-approved cryptocurrencies had the status of the property to determine inheritances.
There is no indication that China’s regulations on cryptocurrencies intend to lift the ban on cryptocurrencies anytime soon. Still, recent developments suggest that the government intends to position China as a leader in the crypto space. Those developments include statements by Chinese government officials endorsing blockchain technology, the extensive trial and testing of the central bank’s digital currency, a joint venture with SWIFT, the international payment and cross-border payment gateway, and the continued status of crypto mining within China.
While a timeline is still undefined, China’s central bank has been working on introducing an official digital currency since 2012, with efforts accelerating after the announcement by Facebook related to its plans to introduce its currency. To this end, in late 2020, the government of Chinese drafted a law that conferred legal status on PBOC’s digital Yuan. The legislation is expected to result in the demise of the fiat currency and the introduction of bespoke currency controls covering exchanges and currency fungibility.
The cryptocurrency regulations in Singapore. Singapore passed a law that extends its cryptocurrency regulations to companies with a local presence that provide digital token services outside the city-state, as authorities further tighten rules around the emerging industry. Lawmakers of Singapore approved the Financial Services and Markets Bill 2022, which was brought up in parliament for debate. The law brings digital token service providers created in Singapore who provide their services elsewhere under the purview of domestic regulators.
The city-state’s central bank already regulates crypto players operating in Singapore and serving the local market. They are required by law to adhere to licensing requirements as well as be able to guard against money laundering and terrorist financing. The new law requires all crypto players to come under the exact licensing requirements, whether they serve the local or foreign markets.
The legislation covers industry players who deal in Bitcoin, Ethereum, and other digital currencies, facilitate their exchange, or offer financial advice on selling these tokens, among other activities.
The Monetary Authority of Singapore published a consultation paper proposing legislation for payment services. The proposed bill would expand the scope of regulation to include the purchase and sale of virtual currencies and other innovations used in domestic money transfers and merchant transactions via point-of-sale or online payment gateways. The new legislation would be incorporated into Singapore’s existing laws on payment services, the 2006 money-changing, and the remittance Businesses act. The draft is the second of its kind and was amended following feedback from the first consultation paper.
Eventually, in 2019, the Payment Services Act 2019 or PSA was passed, officially bringing exchanges and other cryptocurrency businesses under the regulatory authority of the MAS. This legislation took effect in January 2020.
With the Payment Services Act having only recently taken effect, there will inevitably need to be an adjustment period as crypto businesses adapt to the new legislation, which is, in many ways, aligned with FATF’s most recent recommendations. However, MAS will likely follow this legislation with additional regulations that strive to further align its position with that of FATF.
Singapore-based cryptocurrency platform Coinhako has been granted a Major Payment Institution or MPI license from the Monetary Authority of Singapore or MAS to offer Digital Payment Token Services under the Payment Services Act or PSA. The exchange is one of five firms that received a DPT license from the MAS last year, reflecting Singapore’s intention to enhance its global reputation as a regulated destination for cryptocurrency services.
Many DPT service providers currently operate in Singapore under an exemption until their application is reviewed by MAS or withdrawn by the applicant. Coinhako was the first local non-bank crypto exchange to secure in-principle approval from MAS last November. Obtaining the license has always been a top priority to ensure a “compliant-first approach.”
The cryptocurrency regulations in Japan. Japan currently has the world’s most progressive regulatory climate for cryptocurrencies and recognizes Bitcoin and other digital currencies as legal property under the Payment Services Act or PSA. Following those regulations, crypto exchanges in Japan are required to be registered and comply with traditional AML/CFT obligations. Japan is the world’s biggest market for Bitcoin. In December 2017, the National Tax Agency ruled that gains on Japan’s cryptocurrency should be categorized as ‘miscellaneous income’ and investors taxed accordingly.
Recent regulations include amendments to the PSA and to the Financial Instruments and Exchange Act or FIEA, which took effect in May 2020. The amendments introduce the term “crypto-asset,” place greater restrictions on managing users’ virtual money, and more tightly regulate crypto derivatives trading. Under the new rules, Japan’s cryptocurrency custody service providers that do not sell or purchase crypto assets fall under the scope of the PSA.
In contrast, cryptocurrency derivatives businesses fall under the scope of the FIEA. Japan’s cryptocurrency exchange regulations are similarly progressive. Under the PSA, only businesses with a competent local Financial Bureau can operate as a cryptocurrency exchange. However, in keeping with Japan’s progressive stance, foreign cryptocurrency exchanges are permitted to register where they can demonstrate an equivalent registration standard in their host country.
Japan’s Financial Services Agency or FSA has stepped up efforts to regulate the trading and exchanges of cryptocurrency in Japan. Amendments to the PSA require cryptocurrency exchanges to register with the FSA to operate a process that can take up to six months and imposes stricter requirements around cybersecurity and AML/CFT.
In Japan, exchange-based regulations are primarily aimed at protecting market integrity. Users, investors, and exchanges must observe certain record-keeping requirements and provide the FSA with an annual report. Subsequent amendments in 2016 and 2019 updated this requirement to include checking customer identification and covering custodian services providers.
Japan can be considered the Asian leader or potentially even the world leader in innovation in the cryptocurrency industry. They even have their self-regulatory authority, the Japan Authority of Digital Assets. In 2016, a law was put in place regulating exchanges’ activities.
Since then, they have been subject to registration with the Japanese Financial Services Agency, which can conduct inspections of such businesses and apply appropriate administrative measures. Cryptocurrencies have the status of an asset-like value following this law. In Japan, virtual currency and transactions are also subject to taxation following the standard rules: the income received by an individual in the form of a cryptocurrency is subject to income tax. The profit gained by a legal entity in digital currency is subject to corporate income tax, and the sale of cryptocurrency is subject to the Japanese version of the Consumption Tax.
Recent regulations in Japan also include amendments to the Payment Services Act and the Financial Instruments and Exchange Act, passed in May 2019 and took effect in April 2020. These amendments introduce the term “crypto asset,” which is to be used instead of “virtual currency,” which places greater restrictions on managing users’ virtual money and more tightly regulations on crypto derivatives trading.
In the future, Japan is expected to be a friendly environment for cryptocurrencies, but growing AML concerns are drawing the FSA’s attention to further regulatory steps. Following talks between exchanges and the FSA, an agreement to form yet another self-regulatory body, the Japanese Virtual Currency Exchange Association, was put in place. It’s the first country to take such a step, and all exchanges are association members. This association provides advice to as-yet unlicensed exchanges. It promotes regulatory compliance, so it will play a massive role in establishing industry best practices and ensuring compliance with the new regulations soon.
Vietnam’s cryptocurrency regulations. While cryptocurrency trading and use are growing in popularity globally, the Vietnamese legislation does not refer to such transactions. Vietnam’s Deputy PM has asked the country’s Ministry of Finance or MoF to develop a legal framework for cryptocurrency and virtual assets. The development is part of Vietnam’s Prime Minister Pham Minh Chinh asking the country’s central bank, the State Bank of Vietnam or SBV, to begin working on a pilot project on cryptocurrency in May 2020.
The blockchain-based project is expected to be implemented sometime between 2021 and 2023. Reports state that this is part of the government’s plan to develop a strategy for a digital economy. The MoF is expected to release a specific time frame for implementing the legal framework though no date has yet been released. The development comes after the MoF, on March 30, 2021, established a research group, which began an in-depth study of cryptocurrencies, intending to achieve legislative reform for the industry in the near term.
While cryptocurrency trading and use are gaining popularity globally, the Vietnamese legislation does not refer to such transactions. Bitcoin and other similar cryptocurrencies have been designated by the State bank of Vietnam as illegal and banned for trade relationships. Virtual currencies are neither money nor legal tender in Vietnam, and the State Bank of Vietnam warns against investing in, holding, or transacting in virtual currencies. In fact, on April 11, 2018, Bitcoin was outlawed as a means of payment. While individuals and businesses were still free to make private investments in crypto, digital currencies could not be used to purchase goods or services.
Malaysia’s cryptocurrency regulations. Cryptocurrency, or digital currency, became regulated in Malaysia through enacting the Capital Markets and Services Order 2019, such as Prescription of Securities and Digital Currency and Digital Token. Here, all-digital currency and digital tokens that meet the criteria stipulated in the order will be prescribed securities for securities law in Malaysia.
Nonetheless, the SC has also clarified that digital currency and digital tokens are neither legal tender nor payment instruments regulated by the BNM. Following order 2019, the SC has also published its 2020 Guidelines on Digital Assets, which came into force on October 28th, 2020. It sets out the requirements relating to fundraising activity through digital token offerings, operationalization of initial exchange offering platforms, and the provision of services for the safekeeping, storing, holding, or maintaining custody of digital assets for another person’s account.
The 2020 guidelines confer regulatory flexibility by allowing the SC to grant exemptions varying the guidelines’ requirements upon application. In January, the SC amended its 2015 Guidelines on Recognised Markets to introduce new requirements for electronic platforms that facilitate the trading of digital assets. Based on the SC’s website updated on October 7th, four recognized market operators are currently allowed to operate as digital asset exchanges in Malaysia. It should be noted that digital asset exchanges were previously subjected to the Anti-Money Laundering and Counter Financing of Terrorism Digital Currencies Guide, issued by the BNM in February 2018.
However, given the amendments made to the 2015 guidelines, digital asset exchanges are currently subject to the Guidelines on Prevention of Money Laundering and Terrorism Financing for Capital Market Intermediaries, issued by the SC in 2014 and amended in April this year. Besides prescribing digital assets as securities for securities law and issuing guidelines governing initial coin offerings, other aspects must be considered, principally the treatment of holding cryptocurrencies for taxation purposes. The current tax system in Malaysia does not have a specific regime to deal with digital businesses. Virtual currencies were previously not legal tender in Malaysia, but the government was long expected to enforce new cryptocurrency regulations.
India’s cryptocurrency regulations. In 2013, the authorities stated that they did not want to regulate the turnover of Bitcoin. From 2016 to 2017, a massive tightening of rules on the circulation of funds began. The authorities arbitrarily began to take gold away from citizens. Simultaneously, blockchain solutions for banks and other innovations became more available.
The fundamental stand of the reserve bank of India concerning Bitcoin and other cryptocurrencies is that they are not legal tender currencies. They cannot be used for payments as usual currencies. Instead, they have significant risks without any regulation and support. The RBI has issued warnings three times, first in December 2013, then in February 2017, and finally on 5 December 2017. The initial caution by the RBI in 2013 explains why investment in virtual currencies such as Bitcoin is risky.
However, there were some signs in 2017 and 2018 that India’s governments were looking at the possibility of less prohibitive cryptocurrency regulations, but recent reports suggest they’ve reversed course. In July 2019, an interministerial committee recommended a blanket ban on cryptocurrencies, except for an official digital currency. In addition, a leaked, alleged draft bill has proposed prison time for those who mine, generate, hold, sell, deal in, issue, transfer, dispose of or use Cryptocurrency in the territory of India. Nevertheless, this draft bill has not yet made it onto the wider parliament floor, and there are reports that the government is revisiting the possibility of regulating cryptocurrencies instead of outright banning them.
The Indian government’s stance on cryptocurrencies exhibits a word of caution, as is evident from the proposed tax regime and the same administration. As per the Finance Bill, 2022, consequently suggested amendments to the Income Tax Act 1961 have been made wherein income arising from the transfer of virtual digital assets such as cryptocurrencies and NFTs shall be taxed.
In the 2022 Budget, the virtual digital asset’s definition has been introduced to set the regulatory machinery in motion concerning all cryptocurrencies and NFTs. The government has retained the power to classify or declassify any cryptocurrency and NFT from the casting net of this definition. This saving provision is inserted potentially to avoid India’s Digital Rupee or Central Bank Digital Currency or CBDC, such as the proposed digital currency to be introduced by the Reserve Bank of India being made a subject of tax or regulation under the 2022 Bill.
There is a fundamental difference between proposed CBDC and private cryptocurrencies apart from the government backing. The CBDC will be based on permissioned blockchain technology, unlike the permissionless blockchain technology that other private cryptocurrencies like Bitcoin and Ethereum use. Permissionless blockchain technology is an open network where any private person can contribute, create, or mine coins by adding nodes to the blockchain.
Due to this reason, any private person can mine Bitcoins with enough technological support. However, with permissioned blockchain technology and, more specifically, CBDC, only the Central Government and other agencies authorized by the Government will have the authority to mine, tweak the volume, and control the supply of the CBDC. Technically, permissioned blockchains have an access-control layer built into the blockchain nodes, restricting unauthorized users from creating or adding nodes. This technology proves very beneficial for banks, governments, and entities using blockchain technology, whereas in this case, it is certainly to secure the Government of India’s own Digital Rupee.
The current draft bill of the Cryptocurrency and Regulation of Official Digital Currency 2021 seeks to prohibit all private cryptocurrencies in India.
Thailand’s cryptocurrency regulations. Cryptocurrencies are not lawful currencies and are not considered legal tender in Thailand. Instead, cryptocurrencies and other digital tokens are deemed “digital assets” by the Royal Decree on Digital Asset Business, which took effect on May 14, 2018. Digital assets may be issued, traded, and exchanged through digital assets business operators, who are governed and licensed by the
Thai Securities and Exchange Commission or SEC through the Royal Enactment on Digital Asset Businesses or REDA, which also took effect on May 14, 2018. Buying and selling cryptocurrencies had previously been banned in Thailand, although such ban was silently lifted on February 15, 2014. The SEC has approved Bitcoin, Ethereum, Ripple, and Stellar as tradable cryptocurrencies and digital asset exchanges, brokers, and dealers as licensed operators.
In exchange, new and existing crypto fund managers and investment advisors must apply for licenses to operate their businesses as of February 24, 2021. However, local banks and financial institutions are still banned from direct dealings with cryptocurrencies. February 12, 2018, the circular issued by the BOT emphasized the clear delineation between cryptocurrency transactions and traditional bank businesses.
Likewise, crypto exchanges must promptly disclose user information whenever funds transfer between firms, mainly information about know-your-customer and suitability requirements. In initial coin offerings cases, newly issued digital tokens must be approved by the SEC, accompanied by a draft prospectus, registered with all of the required materials, and issued through a portal approved by the SEC.
On March 19, 2021, the Bank of Thailand or BOT announced that it would be regulating foreign currency-backed, asset-backed, and algorithmic stablecoins that are not illegal moving forward. The BOT is still receiving comments and feedback on such regulations. In contrast, those stablecoins without asset backing are to remain unregulated, leaving investors unprotected against any losses or bad actors for those transactions.
The BOT is developing a Retail Central Bank Digital Currency or CBDC to meet the needs of the general public, improve service efficiency in the business sector, and increase access to financial services. On July 16, 2020, the BOT entered phase three of its CBDC development process and was already using such CBDC for financial transactions with a few large businesses.
The cryptocurrency regulations in Hongkong. On January 28, 2022, the Securities and Futures Commission and the Hong Kong Monetary Authority or HKMA issued a Joint Circular on Intermediaries Virtual Asset Related Activities, the 2022 Crypto Regulation Circular.
The circular sets the approach to regulating the distribution of crypto assets. It comprises what the circular calls “virtual assets” and “virtual asset-related products,” as well as the provision of dealing and advisory services in respect of such assets. In this article, we provide an overview of the updated requirements.
Though not entirely clear, the circular appears to govern two different types of crypto assets: virtual assets and virtual asset-related products.
“Virtual assets” are digital representations of value in digital tokens, such as utility tokens, stablecoins, tokens backed by securities or assets, or other virtual commodities. For this purpose, an asset may be a virtual asset within the scope of the Crypto Regulation Circular, irrespective of whether or not it amounts to “securities” or “futures contracts” as defined under the Securities and Futures Ordinance or SFO.
However, a virtual asset excludes digital representations of fiat currencies issued by central banks. The 2022 Crypto Regulation Circular imposes some selling restrictions on virtual asset-related products. However, the position is unclear for those not virtual assets themselves, with a view to investor protection. Though the circular does not indicate that virtual asset-related products are invariably complex under the Code of Conduct for Persons Licensed by or Registered with the SFC, it suggests that they will likely be complex products.
It is because the risks associated with investing in such assets are not reasonably understood by a retail investor or even where such virtual asset-related products are traded on an exchange. Where such virtual assets are to be regarded as complex products, intermediaries licensed by or registered with the SFC should apply the complex product regime, as set out under the Code of Conduct, to distribute such assets.
Except for professional, institutional investors, and qualified professional corporate investors, the 2022 Crypto Regulation Circular appears to provide that in distributing virtual asset-related products. Whether or not they are complex products, intermediaries should assess clients’ knowledge of such products before effecting transactions in those products on their behalf.
The cryptocurrency regulations in Indonesia. Cryptocurrency has grown in popularity, and Indonesian regulators are still trying to catch up. Hence, foreign investors interested in this untapped market should be mindful of cryptocurrencies’ current regulatory environment. Bappebti Regulation No. 7 in 2020 has compiled a list of 229 crypto assets that may be traded lawfully on future exchanges. Bitcoin has been recognized as a commodity, and the regulatory standards for cryptocurrency exchanges also have been classified.
The Indonesian currency is determined by law, according to Article 23B of the country’s constitution, and the currency legislation of 2011 mandates that nearly all financial transactions in Indonesia be conducted in the Rupiah, the country’s only recognized currency. Only International transactions, government spending, and bank deposits are exempt.
According to the country’s legislation, the purchase and selling of cryptocurrencies in Indonesia are only authorized for investment reasons or legally specified crypto assets. However, the central bank recently underlined that cryptocurrencies are not a valid payment method. Banks are forbidden to facilitate the use of cryptocurrency as a form of payment. The Ministry of Trade Regulation No. 99 of 2018 formally authorized crypto asset trading and decreed it lawful.
Furthermore, the Indonesian Commodity Futures Trading Supervisory Authority, or Bappebti, published Regulation No. 5 of 2019 to provide a comprehensive regulatory framework for the future crypto-assets. According to data from the Blockchain Association of Indonesia, the number of investors has risen by 280% since 2020, from 1.5 million to 4.2 million, with a daily trading volume reaching 117.4 million U.S. dollars. These Bappebti Regulations in Indonesia have made significant progress toward building a comprehensive legal framework that will guarantee that the crypto sector thrives in the country, even if it is not yet accepted for payment.
The Bank of Indonesia has warned that cryptocurrencies may not be used for payments in the country, and payment firms are not allowed to make virtual currency transactions. The Bank of Indonesia also affirms that it forbids all payment system operators and financial technology operators in Indonesia, both bank and non-bank institutions, from processing transactions using virtual currency.
In Asia, crypto laws and regulations are currently inconsistent. Across the board, the regulatory framework is fragmented and varied. Some countries, such as China, have prohibited cryptocurrency mining due to concerns about energy consumption. China, like Bangladesh, has issued strict prohibitions on cryptocurrency trading and other crypto-related activities.
North Korea has used cryptocurrencies to avoid Western sanctions and fund its nuclear missile program. However, the rest of the world is baffled by their regulatory framework for retail and institutional investors. Singapore and Thailand appear to have more lenient cryptocurrency regulations than other countries. Still, the crypto economy is under scrutiny, particularly in terms of Anti-Money Laundering (AML), Counter-Financing Terrorism (CFT), and licensing, which have become more stringent in recent months.