Crypto regulations in APAC

The Asia-Pacific (APAC) region has among the highest adoption and growth rates for cryptocurrencies. Lawmakers and regulators in the area are creating new rules and guidance to help propel economic growth while protecting consumers and their financial systems.

The region already has many of the elements in place for mainstream crypto adoption:

• Digital payments are widely used and growing fast. For example, digital payments will account for 91% of the U.S. $179.8 billion in eCommerce transactions by 2025.
• The proximity of the population to many other countries results in many consumers performing cross-border transactions.
• There’s a large population of underbanked and unbanked people, which is an opportunity for crypto companies to deliver essential financial services.

In their Global state of crypto report, Gemini stated, “2021 was a breakout year in Asia Pacific.” In 2021, 45% of all crypto owners in the region were new to crypto. The region also has some of the world’s highest crypto adoption rates, with Indonesia (41%) ranked number one, and Singapore (30%) and Hong Kong (24%) in the top ten.

Depending on the definition, APAC can include a wide swath of countries that border the Pacific. Each country has distinct attitudes and regulations around crypto, so any Virtual Asset Service Provider (VASP) needs to consider each country’s specific culture and requirements.

Let’s examine the crypto regulations and environment for some of the larger economies of East Asia and Southeast Asia.

China crypto regulation

China explicitly bans all cryptocurrency-related activity such as transactions or mining. They are developing a Central Bank Digital Currency, the digital renminbi (or digital yuan, e-CNY.)

Japan crypto regulation

The Financial Services Agency (FSA) is the primary financial regulator in Japan and the majority of crypto use cases fall under the Payment Services Act. Businesses that buy, sell or exchange crypto are classified as Crypto Asset Exchange Services (CAES) and must be registered with the FSA.

Businesses that hold or manage crypto for clients have similar requirements. As a result of the Mt. Gox fiasco, there are strict regulations around the custodial holding of crypto assets, including keeping the business and customer wallets separate and keeping 95% of assets in cold storage (not connected to the internet).

Registering as a CAES in Japan is not a trivial process. Typically, a Japanese subsidiary with local expertise in FSA operations is required. The applicant needs to provide evidence that they have the financial backing, operational knowledge and internal systems equivalent to financial institutions in Japan.

Payments in Japan still often use cash. The use of crypto is only 4%; with the world’s 3^rd largest economy and its high-tech culture, the opportunity to innovate in Japan is significant.

South Korea crypto regulation

A new administration in South Korea is looking to introduce cryptocurrency regulations that propel innovation in the sector. The Digital Asset Basic Act (DABA) will loosen restrictions for virtual asset trading account issuing institutions, among other significant changes.

From March 2021, amendments to the Financial Transaction Reports Act (FTRA) require VASPs to partner with commercial banks and use real-name verified bank accounts. The bank determines if the VASP meets standards, and these standards are unpublished and up to the bank’s discretion. There have been complaints that the banks make the VASP process unnecessarily tricky, costly and slow to benefit the existing four major exchanges (Bithumb, Upbit, Korbit and Coinone). According to attorney Ku Tae-eon,

Crypto startups that aren’t on a major corporate scale will have a hard time getting their ISMS (Information Security Management System) certified, acquiring bank partnerships and meeting other conditions for VASP registration.

Similar problems occur for foreign-based companies trying to set up exchanges. It’s important to note that these rules apply only to fiat currency accounts and don’t specifically apply to crypto-to-crypto activities. Still, most Koreans will want to use their currency for crypto investments.

The enactment of the FTRA amendments has had a serious effect on VASPs. The requirement to register with the Korea Financial Intelligence Unit (KoFIU) saw only 3 out of 66 VASPs gain approval by the extended deadline of September 24, 2021. The rest are either still in review or have abandoned their Korean operations.

Until the DABA regulations are in effect, expanding crypto services to South Korea might prove difficult.

Indonesia crypto regulations

As mentioned, Indonesia has the highest crypto adoption rate globally at 41%. Indonesians widely consider crypto as a good hedge against inflation. Interestingly, 61% of Indonesians believe crypto is the future of money, which is substantially more than the 23% of people in the U.S., France and Germany that hold the same sentiment.

Using crypto for payments is not allowed, but assets are tradable on the commodities exchange under the oversight of The Commodity Futures Trading Regulatory Agency (CoFTRA or BAPPEBTI.) There are 229 cryptocurrencies that are eligible for trading, with an official statement that said (in part):

With the issuance of the CoFTRA (Perba) regulation, it is hoped that physical trading of crypto assets in Indonesia will be able to provide legal certainty as well as protection for people who transact physical crypto assets in Indonesia.

Any exchange needs registration for CoFTRA and financial service companies are prohibited from offering crypto services. The crypto-asset trading requirements include:

• Capital of IDR80,000,000,000
• Keeping 80% of capital in equity
• Established company structure and trading rules with information technology, audit, legal, customer service, client support, accounting and finance divisions

Binance founder and CEO Changpeng Zhao suggests,

With fast technology adoption and strong economic potential, Indonesia could become one of the leading centers of the blockchain and crypto ecosystem in Southeast Asia.

With its large, youthful population, strong economic growth and rapid digitization, Indonesia will become the world’s 4th largest economy by 2050. Its positive approach to crypto helps make it an exciting market for expansion considerations.

Thailand crypto regulation

As of April 1, 2022, Thailand banned crypto for payments. The Bank of Thailand (BOT) and the Securities and Exchange Commission (SEC) cited concerns around price volatility, cyber theft, personal data leaks and money laundering as the reasons for the ban. They also noted that

Current payment system in Thailand is already highly efficient. As a result, the use of digital assets to pay for goods and services does not add much benefit to people and businesses.

But Thailand allows digital assets for investment and sees the benefits of using digital assets. The SEC has laws to support digital asset business, are developing a Central Bank Digital Currency and are promoting the blockchain development of new financial services.

The Thai Anti-Money Laundering Office (AMLO) requires in-person verification for crypto accounts using a “dip-chip” machine, which scans an embedded chip in Thai national Identification cards.

Hong Kong crypto regulation

In January, Hong Kong regulators released the Joint Circular on Intermediaries’ Virtual Asset Related Activities, which guides virtual asset-related activities.

Direct investment in cryptocurrency is restricted to Professional Investors, who have at least HK$8 million in an investment portfolio. But retail investors can access certain crypto investments via futures and ETFs on specified exchanges using financial intermediaries if the investment is not a “complex product.”

Virtual asset providers that offer these services to retail investors must comply with the existing requirements for derivative products and conduct a virtual asset-knowledge test as an additional safeguard. They should also ensure that the client has the financial resources to handle the risk and potential losses of these investments.

Foreign-based crypto exchanges will not be allowed to “actively market” their services in Hong Kong unless licensed by the Securities and Futures Commission (SFC). The exact rules around this guidance are to be determined.

The SFC currently licenses only one virtual asset trading platform, which is optional under the existing regulations. The new approach will create mandatory licensing requirements for these platforms and all financial intermediaries will need to partner with a licensed platform.

While the new restrictions might appear onerous, many commentators see the clarifications as a positive move. There’s hope that retail restrictions might be loosened once the regulations and licenses are in place.

Singapore crypto regulation

Singapore is a global leader when it comes to crypto regulation. Monetary Authority of Singapore (MAS) Managing Director Ravi Menon, when talking about licensing VASPs, stated

The licensing process is stringent. And it needs to be because we want to be a responsible global crypto hub with innovative players, but also with strong risk management capabilities.

Any VASP whose business deals with buying and selling digital tokens, provides an exchange for tokens, provides custodial services for tokens, or promotes or advertises these services generally falls under the Payment Services Act (PSA). The country has also passed the Financial Services and Markets Bill (FSM Bill), which will refine requirements for the industry when it comes into force.

The FSM’s significant difference from the PSA is that licensing requirements will extend to VASPs that offer their services to foreign citizens. While Singapore intends to enable crypto services worldwide, they want to ensure full Anti-Money Laundering (AML) procedures are in place and international standards enforced.

Malaysia crypto regulation

Malaysia has a robust and forward-thinking approach to crypto. According to John Sidoli, head of compliance at regulated exchange Sinegy,

In terms of securities regulation relating to crypto, Malaysia is 18-24 months ahead of financial jurisdictions such as Singapore … It also has a young, tech-savvy and relatively well-educated population and benefits from its proximity to key jurisdictions in Southeast Asia.

Cryptocurrencies are considered neither legal tender nor a payment instrument. Instead, they are “prescribed as securities for the purposes of the securities laws” under the Capital Markets and Services Order 2019.

Digital asset exchanges must comply with the Guidelines on Prevention of Money Laundering and Terrorism Financing for Reporting Institutions in the Capital Market and

are required to conduct customer due diligence on all customers and the persons conducting the transaction when the reporting institution established business relationship with the customer and when the reporting institutions have any suspicion of money laundering or terrorism financing.

Even more progressive crypto regulation might be forthcoming. Malaysia’s deputy minister of The Ministry of Communications and Multimedia suggested to a branch of the Malaysian federal legislature to allow crypto for legal transfer,

We hope the government can allow this … We are trying to see how we can legalize this so that we can develop youth participation in crypto and assist them.

With its 166% growth rate of crypto adoption from 2019 to 2021, Malaysia is a crypto market to watch.

Philippines crypto regulation

Crypto is popular in the Philippines, with Statista reporting a 28% adoption rate in 2021, up from 15% in 2019. Crypto is not legal tender in the Philippines and the Economist Intelligence Unit (EIU) suggested that the Philippines displays the most benign attitude toward cryptocurrency.

The Guidelines for Virtual Asset Service Providers (VASP) stipulates for crypto exchanges include:

• Apply for a license (“certificate of authority”) to operate as a money sending business
• Conduct Customer Due Diligence
• Treat cryptocurrency transactions as cross-border wire transfers, keeping participant data for those over 50,000 pesos (USD $1,000)
• Report suspicious activity or single transactions of 500,000 pesos (USD $10,000), which will need extra due diligence and have payout restrictions

For those businesses looking to expand globally, the Philippines offers tremendous opportunities with its internet-savvy and mobile-loving population.

Vietnam crypto regulation

Vietnam is another country with high crypto adoption rates; in 2021, Statista puts it at 27%. While crypto was banned for payments in 2017, the government still allows citizens to hold them as assets. While there is currently no legal framework for crypto assets, the country is investigating how best to “develop legislation aimed at controlling risks but in such a way as to not affect other sectors including e-commerce and information technology.”

Vietnam is an exciting and quickly growing market. Consider that, as the World Economic Forum puts it, “with such rapid economic growth, the country grew from one of the poorest countries in the world to a comfortably middle-income one.” With clear and defined crypto rules, the opportunity might be substantial.

The next wave of opportunity

While crypto market prices have dropped recently, they are infamous for their volatility. The fundamental reasons behind crypto adoption have not changed and there’s no reason to believe that markets will not rebound. For VASPs that want to position for long-term growth, now is the time to prepare and optimize onboarding and compliance processes. When the market comes back, be ready.

If you are considering expanding into the region, Trulioo can help. With Trulioo GlobalGateway, you can instantly verify identities and businesses in APAC and countries worldwide.