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Initial coin offerings – a snapshot of the regulatory landscape in Asia

As regulators around the world take a public stance on their approach towards initial coin offerings (ICOs) in quick succession, the ground upon which players in the cryptocurrency market operate is shifting. Here is today’s snapshot of the regulatory landscape for initial coin offerings in Asia:

1 April –  Japan: Virtual Currency Act comes into force. Initial coin offerings (and bitcoin as a form of payment) are officially legalised but a regulatory framework is put in place  – ICOs can only be handled by registered virtual currency exchange businesses, with reporting and approval requirements being administered by Japan’s Financial Services Agency.  

In September, Coincheck became the first Japanese exchange to receive FSA approval. 

1 August – Singapore: The Monetary Authority of Singapore clarifies that the offer or issue of digital tokens may constitute products regulated under the Securities and Futures Act (Cap. 289) (SFA). Where digital tokens fall within the definition of securities in the SFA, issuers of such tokens will need to lodge and register a prospectus with the MAS before the offer of such tokens, unless exempted. Issuers or intermediaries of such tokens would be subject to licensing requirements. In addition, platforms facilitating secondary trading of such tokens would need to be approved by the MAS. 

25 August 2017 – Vietnam: Vietnam announces that it is carrying out an assessment to be completed by August 2018, and expects to put in place a regulatory framework for cryptocurrencies by the end of 2018 (as reported in August by regional news service VNA).

3 September – South Korea: The Financial Supervisory Commission announces that the financial regulators intend to put in place regulations on the domestic trading of digital currencies and “will expand the application range of Act on the Regulation of Conducting Fund-Raising Business Without Permission and come up with regulations on digital currency trading by establishing the law”  (as reported in Business Korea). 

4 September – The PRC: The People’s Bank of China and six other governmental departments issue the Circular on Preventing the Risks of Financing via Token Offerings, declaring ICOs to be illegal. 

Trading platforms cannot buy, sell or provide any “virtual currencies” services. Financial institutions and non-bank payment agencies cannot provide any services supporting “virtual currencies”, such as account opening, registration, trading, clearing or settlement. This follows its previous announcements in 2013 (“Circular on Preventing Risks from Bitcoin”) and 2016 (“Directive Opinion on Further Strengthening the Monitoring and Early Warning of Financial Transactions Involving Possible Illegal Fundraising”). 

In light of the above, the Chinese government currently imposes the harshest regulatory environment for the use of cryptocurrencies in Asia. 

5 September – Hong Kong: The Securities and Futures Commission issues a statement to clarify that digital tokens that are offered or sold may be “securities” as defined in the Securities and Futures Ordinance, and accordingly subject to the securities laws of Hong Kong. 

The SFC warns that where digital tokens involved in an ICO fall under the definition of “securities”, dealing in or advising on such digital tokens, or managing or marketing a fund investing in them, may constitute a regulated activity. Parties engaged in such regulated activity will need to be licensed by or registered with the SFC, irrespective of where they are located, so long as the business activities target the Hong Kong public.  Parties engaging in the secondary trading of such tokens (eg, on cryptocurrency exchanges) may also be subject to the SFC’s licensing and conduct requirements. Certain requirements relating to automated trading services and recognised exchange companies may be applicable to the business activities of cryptocurrency exchanges.

7 September – Malaysia: The Securities Commission issues a media statement warning investors to be mindful of the potential risks involved in ICOs. No specific regulations are in place yet, though on 20 September, the governor of Bank Negara Malaysia was reported as saying that they hope to come out with guidelines on cryptocurrency by the year end. 

14 September – Thailand: The Securities and Exchange Commission issues a statement on ICOs, noting that some digital tokens may resemble financial returns, rights and obligations in similar ways to securities under the Securities and Exchange Act. Noting, however, that ICOs may not yet fit neatly within the current regulatory framework, the SEC Thailand is considering approaches and is inviting comments from the private sector. 

The SEC Thailand appears not to be averse to ICOs in principle: “The SEC Thailand encourages access to funding for businesses, including high potential tech startups, and realizes the potential of ICO in answering startups funding needs." 

What’s next?

One thing is clear – regulators need to take action to regulate the cryptocurrency market and initial coin offerings, not least because of potential money laundering, terrorist financing and fraud risks. Yet there is little consensus on how to do so. Label virtual currency as “securities” and bring them under existing securities laws? Introduce targeted regulations? Ban them altogether? One might speculate that we have not yet heard the last word from China on ICOs – this could be an interim measure designed to buy time for a more nuanced but controlled manner of regulation. After all, China is also under pressure to meet the innovation goals in its AI Development Plan as released this August. 

From the snapshot above, it appears that many regulators in Asia have not yet fully engaged with the task of creating a regulatory framework that can both protect investors and encourage innovation. Warnings that ICOs may potentially fall under the umbrella of existing securities regulations again seem like a bit of a stopgap to put something in place and make relevant players think twice before proceeding – akin to a principles based form of regulation. More tailored regulations are required and hopefully regulators will be continuing to look into this to decide what form this should take. In this respect, Japan appears to be ahead of the pack. One of the earliest to introduce legislation targeted at cryptocurrency, Japan’s attempts to set out clear regulatory signposts appears to be effective at putting it firmly on the cryptocurrency map – shows that more than half of the world’s bitcoin trades are now in Japan.


artificial intelligence, media and telecommunications, technology, cryptocurrency, intellectual property, cyber security, employment, gdpr, internet of things