Article by Crypto News Asia on May 30, 2018 and reposted here with permission.
From mysterious Bermuda to isolated Malta and from that rock called Gibraltar to the scenic beaches of the northernmost tip of the Philippines, a crypto race is gaining traction. These lesser known jurisdictions are seeking to attract investments from the crypto players struggling to cope with increasingly onerous regulations in the more mature countries they operate in.
Exchange operators and projects embarking on ICOs are taking note.
A number of them are flying over to such markets to explore the opportunities.
The voyage to such seemingly greener pastures has been led by crypto exchange giant Binance.
In fact Binance’s decision to locate its headquarters in Malta has had an interesting result, making Malta the country with the highest cryptocurrency trading volume. However it is not clear if the Morgan Stanley report is a prediction or a capture of the actual trading volumes going through places like Malta. This is considering that Binance is still in the process of setting up its headquarters in Malta, along with another big exchange OKEx.
Then last week, 21 companies signed MoU’s with the Philippines’ Cagayan Economic Zone Authority (CEZA) which is reshaping itself to become a fintech hub. Most of the companies that signed come from North Asia and are exploring the setting up of their exchange operations or ICOs in the CEZA zone, which is an autonomous region with the country.
The race to these locations is to move away from increasingly heavy regulations in more mature markets into more friendly ones.
Central banks in established markets are putting pressure on exchanges to provide comprehensive reporting of their trades in line with the standards practised by traditional exchanges. Similarly, projects launching ICOs are being treated as security offerings and hence being shut down due to not conforming with the extensive securities laws requirements.
Edmund Yong, an ICO adviser explains, “Many exchange operators find that they cannot run away anymore and need to take stock of all the regulations coming their way. This will add substantially to their cost of doing business, as compliance is resource-intensive. Also, exchanges (especially fiat-to-crypto ones) are beholden to bank accounts. So they have no choice but to toe the line if they want to open, and keep their bank accounts open, to accept local fiat in the markets they operate in.”
As for projects launching ICOs, Yong says that they are merely looking for ‘cypto-friendly’ jurisdictions to be domiciled in.
“They really want to know where they stand, and do not want capricious regulators. Even though there are some bad actors that prefer to stay in the shadows, the vast majority are good guys who want to stay on the right side of the law.”
Calvin Cheng, a Singaporean entrepreneur and former parliamentarian, who recently launched a commission-free trading platform, is one of those who have made the journey to Malta presumably to apply for a license. However he says that it is too early to talk about that, considering that the new crypto friendly legislation in Malta is only now being passed.
Cheng explains that the regulatory arbitrage taking place now is due to the different speeds at which regulators move.
“We are seeing some smaller countries like Malta and Gibraltar being more nimble in the way they are approaching regulation. Regulators in larger countries will naturally be more conservative and move at a slower pace. That said, I am extremely optimistic that countries like Singapore will support and look very favourably on financial innovation especially cryptocurrencies.”
So what exactly are these new frontier crypto markets offering?
In the case of Malta, three bills are closed to being passed. According to Hedgeweek, the new legislation will establish a framework for conducting and licensing initial ‘virtual financial assets” or VFA offerings. Malta seems to have opted to use VFA instead of cryptocurrencies, possibly to avoid negative connotations associated with the latter word.
The rules will create a framework for how white papers should be prepared, and will regulate the activities of service providers including exchanges and trading platforms.
In Bermuda’s case, the proposed bill would designate ICOs as “restricted business activities“ and its application process requires disclosure of information about the company and the digital asset being issued.
Philippines’ CEZA though, has a slightly different approach. The zone’s autonomy and slew of incentives had existed for many years. However the government has decided to revive the area, kicking out previous holders of licenses there which did not really make significant investments into the zone.
“The zone’s incentives are enshrined in the constitution. We are updating it to make CEZA a fintech hub and we are targeting companies in Hong Kong, Taiwan, Korea and China, which are all a short flight away to the new airport in CEZA,” says Ramon Garcia Jr who is acted as consultant to CEZA in the drafting of the new rules.
But whether Binance’s MoU with the Maltanese government and the 22 parties which inked a deal with CEZA will lead to actual operations being shifted there, time will tell.
That’s because the regulatory landscape is constantly evolving.
For example, South Korea is now proposing to lift its ICO ban while Singapore says it is drafting new laws for decentralised exchanges. It is no surprise that exchange operators and ICO projects are having a challenging time figuring out where to be domiciled.