Cryptocurrency Regulation in Asia: What Does the Future Hold?

30 June 2019

The wide spectrum of conflicting views on crypto regulation across Asia is always a topic of interest. The question is; will the variation in scrutiny and lack of harmonisation hamper the growth of cryptocurrency in this continent?

By Simone D. Casadei Bernardi

Due to the volatile nature of cryptocurrency and the financial crime risks it can bring, a growing number of countries in the Asia-Pacific region have made regulating the industry an immediate priority. However, instead of working in harmony to create a robust regulatory framework, there seems to be a huge difference in laws and regulations from country to country.

For some of the cryptocurrency community, the Asia-Pacific region is regarded as an ideal testing ground for crypto adoption.

With diverse populations and a general consensus for technological adoption, some of the countries in the Asia-Pacific region have seen an incredible amount of trading in cryptocurrencies during the past couple of years.

In fact, some major financial institutions and merchants have announced their intentions to start offering crypto-related services.

Despite its continued push towards mass adoption, there also seems to be growing concern in the Asia-Pacific region, particularly around capital flight, consumer protection and financial integrity.
The addition of high-profile money laundering and terrorist financing cases have played a role in negatively affecting perceptions too.

In order to get a better understanding of this, it’s important to take a look at the current regulations adopted by each Asian country.

Japan

Japan has been regulating cryptocurrency exchanges since April 2017. Since then, it has developed an intensive licensing regime and regulatory framework designed to supervise them.

With more suspicious activity reports in association with cryptocurrency, its government has given the thumbs up to forming a local cryptocurrency self-regulatory organisation.

Singapore and Hong Kong

Both of these countries have always actively welcomed the innovation of cryptocurrency.

Singapore demonstrated its intentions to prevent de-risking of the industry from the banking sector. However, its approach isn’t laissez-faire. In January 2019, Singapore introduced a new Payment Services Bill that should provide a regulatory framework for cryptocurrency exchanges by the end of the year. The country is considering bringing decentralised exchange platforms under the scope of regulation too.
In November 2018, Hong Kong’s Securities and Futures Commission (SFC) revealed its framework for a regulatory sandbox framework for licensing crypto exchanges. This will allow crypto exchange platforms to voluntarily opt-in to licensing arrangements so the SFC can consider how to effectively regulate this emerging space. Thus, creating a wonderful balance between innovation and managing risks.

South Korea

North Korea’s involvement in the ransomware campaigns and large-scale hacks against cryptocurrency exchanges in South Korea, has naturally made them very suspicious.

However, they have surprisingly just clarified its intentions to bring cryptocurrencies and ICOs within the scope of its regulatory frameworks – with the promise of not stunting innovation within the industry.

Other Asian countries

The Philippines, Thailand, Malaysia and Australia have adopted regulatory frameworks that are aligned with international standards.

China, India, Indonesia and Vietnam

In contrast, countries like China, India, Indonesia and Vietnam have become extremely sceptical about cryptocurrency. This has lead them all to adopt hostile approaches in regulating the industry.

China has become particularly fearful of capital flight risks and banned domestic cryptocurrency exchanges from operation in September 2017. They followed it up by banning oversea cryptocurrency platforms as well in August 2018.

While India hasn’t gone to quite as extreme lengths, they did prohibit banks and other financial institutions from providing services to cryptocurrency exchanges in April 2018. However, they said they will regulate cryptocurrency businesses – with details of the regulations expected soon.

Following concerns about terrorist financing, Indonesia warned against any cryptocurrency activity and classes any dealings within the scope of local securities regulation.

Finally, Vietnam is yet to conclusively decide whether it wants to bank or regulate cryptocurrency exchanges. Although its government has banned the use of cryptocurrencies in payments and mining activity.

Combatting financial crimes going forward

While every country in Asia seems to have its own stance on cryptocurrency regulation, harmonisation might not be as far away as first thought.

Regulators are really focusing on the risks crypto assets pose when it comes to money laundering and other financial crimes.

Know Your Customer (KYC) is an identification process used in EU jurisdictions and is set to become part and parcel of Asian regulation as well.

Headed up by the Financial Action Task Force (FATF), they are expected to come up with a set of rules to oversee cryptocurrencies at some point in June 2019. This will help bring clarity in setting industry standards in Asia and the rest of the world.

The growth of crypto assets

Over the past decade, crypto assets have experienced exponential growth in not just Asia, but the whole world. According to the Global Digital Finance Initiative, the industry has developed from zero “to a complex ecosystem comprising more than 1,6000 types of assets, a total market capitalisation of approximately US$300 billion and total funds raised via the sale of crypto assets of $20 billion”.

Considering this growth was generated largely by retail investors, the future is looking incredibly bright for the industry. Especially with blue-chip names like Nomura and Fidelity launching new businesses to manage digital assets for hedge funds, family offices, trading firms.

Within a year or two, we’ll undoubtedly see bigger financial institutions following suit. After all, nobody wants to get left behind, as it could severely impact their success.

In particular, big financial institutions will turn to blockchain to transform the way customers can make cross-border payments and connect with other people.

That isn’t to say that cryptocurrency won’t follow the same path of success.

Cryptocurrencies and assets are going to come under greater scrutiny over the next few years. While some may think this is bad news, it’s arguably a massive step towards harnessing its true potential for the better.
More regulation, along with the calling for blockchain technology innovation, will result in a trusted, transparent and united market between Asian countries and the rest of the world.

However, whether this persuades countries like China, India, Vietnam and Indonesia to alter their stance on the industry is something only time will reveal.

It’s just a case of keeping up-to-date with regulation changes and choosing a country that actively supports the innovation of cryptocurrency.

 

This article was originally published in “Blockchain Compliance Bulletin”, number 7. Cover image: © bakhurmikele/ Adobe Stock

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