How do you tame the crypto Wild West and rein in the industry? Look Southeast.

by Edmund Yong

How do you attract the bees and keep out the flies at the same time?

Such is the regulator’s dilemma in drafting ICO guidelines. They have to cherry-pick the good actors and throw out the rest. The guidelines have to be taut because there cannot be too much legal ambiguity that may be challenged or regulatory discretion that may be abused. Not all good projects can be approved, and many might be unintentionally lumped together with bad actors in the reject pile.  Of the scores that apply, only a handful will be accepted – many are called but few are chosen.

To wit, Thailand Expects to Approve Five ICO Projects out of 50.

While regulators have relied on the “do no harm” approach in the beginning, it places too much faith on private enterprise and self-policing. Regulators are becoming wary that there is very little room for trial-and-error even though this is uncharted space. They do not have the right to be wrong as investor anger is often misdirected at the regulators rather than the perpetrators. All it takes is just one scandal to wreck thousands of lives. Tempers will flare, media will hound, fingers will point; but the money will stay gone. In the end, the crypto industry will suffer the blowback and be worse off for it. Everyone loses.

Read, Vietnam Vows Crackdown After Alleged US$660M Scam.

So it is a delicate balancing act, and a tough one to pull off. Regulators have to juggle public interest and private initiative. They need to maintain market confidence without choking off a funding source for SMEs, the largest creator of jobs in this region. Even though crypto is too small to carry systemic risk at this time, they still need to instill order where none exists. The lesson of the 90s are upon them when the internet dawned – regulators need to be opportunists too; the hand that rocks the cradle of innovation rules the world!

Most major economies have not formulated specific and comprehensive guidelines on ICOs yet. So it is quite remarkable that the SECs in Thailand and Philippines launched theirs this quarter, even before the crypto forerunners in East Asia. MAS of Singapore did it last year (Nov 2017), notably among the first in the world, followed by FINMA of Switzerland (Feb 2018), and G20 members Russia (Apr 2018) and France (Sep 2018). For many others, the practice is to fall back on existing laws albeit with some limitations. As for Southeast Asia, the position is clear: This region has always been a hive of crypto activity, now it is a serious hotbed as well.

To sign off, here is the comparison between the three pioneers: Singapore, Thailand, and Philippines. Since about every conference these days comes with regulatory verbiage, done ad nauseam, we will just leave it on display and let you read yourselves. Can Southeast Asia finally tame the Wild West with these rules? Let us know what you think.

Initial Coin Offerings Singapore
  • November 2017
  • Guidelines from Monetary Authority of Singapore (MAS)
  • July 2018
  • Digital Asset Businesses Decree by SEC (enacted)
  • August 2018
  • Consultation paper by SEC for public feedback (ended 31 Aug)
Legal Status
  • Virtual currencies (or cryptocurrencies) are not regulated by MAS as they are neither considered securities nor legal tender. But transactions are still subject to AML-CFT compliance.
  • Cryptocurrencies differ from digital tokens. SEC designated some crypto as approved medium of exchange based on the liquidity, demand and extent of decentralization.
  • Virtual currencies (or cryptocurrencies) are neither endorsed nor prohibited by Bangko Sentral Ng Pilipinas (BNP) but will be regulated for its delivery and is subject to AML-CFT compliance.
Token Taxonomy
  • Utility Token | Security Token
  • Digital Token: Utility I Investment
  • Asset Token | Payment Token | Utility Token | Security Token
Litmus Test
  • Tokens are regulated if they fall within definition of capital markets products, namely: shares, debentures or units in a collective investment scheme. These are referred to as security tokens.
  • Tokens can give participative rights to a business (investment), or to receive specific goods or services (utility).
  • Tokens that can be used immediately are utility. Tokens with an objective of public fund raising is investment.
  • Tokens can be asset, payment or utility tokens that satisfy the definition of a security, which are shares, participation or interests in a commercial enterprise or profit making venture.
  • Self-assessment based on six case studies / fact scenarios, which are indicative and non-exhaustive.
  • Prevailing securities laws apply.
  • Assessment done by licensed ICO portals on token attributes, issuer qualification, and due diligence on prospectus and registration statement.
  • Initial assessment request (IAR) shall be submitted by the ICO issuer to SEC for determination of token status at least 90 days before start of presale period,
Documentary Requirements
  • Prospectus is exempted for security tokens if it is a small or private raise made to institutional or accredited parties.
  • Prospectus and registration statement, which includes detailed business plan, audited financial statements, published smart contract codes, etc.
  • Application form which requires team CVs, background checks, legal opinion and whitepaper, which SEC states is not interchangeable with a prospectus.
Distribution Restrictions
  • Prospectus must be registered for any offer above SGD5 million (or foreign currency equivalent); or
  • For private placements to over 50 persons within 12 month period, for institutional or accredited investors, subject to certain conditions.
  • No limit for ultra high net worth, VC, PE and institutional investors.
  • THB300K for retail investor per person per offering.
  • Retail portion must be <70% of total value of token offering, or ≤ 4 times the shareholders’ equity of the issuer.
  • Exempted from security registration if sale to less than 20 persons within 12 month period; or
  • Qualified buyers such as institutional investors and banks; or
  • For judicial sale, to liquidate bona fide debt, or is a isolated transaction.
Approval Timeframe
  • Not applicable
  • Up to 60 days by SEC
  • 20 days + extendable 20 days for IAR
  • Plus SEC registration process if security
Permitted Currencies
  • Not specified
  • Thai Baht and SEC approved crypto (BTC, ETH, BCH, XRP, LTC, XLM)
  • Not specified
  • Singapore laws apply if the person operates a primary platform; or a trading platform partly in or partly outside of Singapore; or as an ICO promoter to induce the local public.
  • ICOs and any token offers to local Thai public can only be done by a company (either private or public) established in Thailand. No international ICOs will be accepted by ICO portals.
  • Foreign ICOs must have branch office in Philippines, subject to site audit or ocular inspection. The ICO business must also show how it is relevant for the Filipino market.

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