Cryptocurrencies in Asia: Early Regulatory Responses
Although cryptocurrencies are becoming increasingly buzzy across the financial sector, there is a lack of consensus within Asia as to the viability of the technology. Blockchain and cryptocurrencies carry great potential for reducing transaction overhead and raising capital, but also come with unique regulatory challenges which must be addressed.
On September 4, the People’s Bank of China (PBoC) announced a ban on all initial coin offerings (ICOs). BitCoin exchange BTCC immediately stopped accepting new users to its trading platform, and on 14th September announced a cessation of all trading on its exchange effective 30th September. Other Chinese cryptocurrency exchanges have not issued closure announcements.
Following the PBoC announcement, the Securities & Futures Commission of Hong Kong issued a statement explaining that existing regulations could be applicable to ICO activities as digital tokens that are offered or sold may be considered “securities and therefore subject to the relevant laws. Parties trading or advising the trading of ICOs that touch the Hong Kong public must be licensed by or registered with the SFC, irrespective of their location.
It is not the first time PBoC has cracked down on cryptocurrencies. Earlier in February the bank suspended cash withdrawals from Bitcoin and Litecoin accounts for a month as the bank investigated potential regulatory compliance issues relating to money laundering.
Most experts agree that the Chinese government is especially concerned about getting control over unregulated activities in preparation for the upcoming 19th National Congress of Communist Party of China (NCCPC) on 18th October. Xi Jinping has been particularly determined to clean up corruption and money laundering in the attempt to re-establish China as an economic powerhouse in both manufacturing and services.
Asia’s second most populous country, India, has also been taking an active approach to the digital currency trend. The Indian government has been exploring initiatives to digitalise the rupee on the back of Prime Minister Modi’s landmark campaign to overhaul the largely cash-based economy; the Institute for Development and Research in Banking Technology specifically has been exploring the use of fiat cryptocurrencies as the Reserve Bank of India remains uncomfortable with non-fiat currencies such as Bitcoin for which there is no central monetary oversight.
The Japanese Financial Services Agency (FSA) has been more supportive of cryptocurrencies than its Chinese or Indian counterparts. The Japanese government formally legalized Bitcoin in April of this year, and the FSA is currently working on establishing a framework for the regulation of cryptocurrency exchanges which will require existing cryptocurrency exchanges to register with the FSA by the end of September. Formal conditions have been set up for virtual exchanges such as the maintenance of minimum capital requirements and the separation of liabilities from exceeding assets. However, the FSA is still looking at how to leverage ICOs to reduce money laundering and fraud including possible establishing accounting rules specific to the cryptocurrency transactions.
GreySpark believes that there needs to be more coordination between Fintech companies, central banks and regulators to guarantee the safe adoption of blockchain technologies that can deliver cryptocurrencies into the financial ecosystem. To help establish a cohesive framework, regulators from across Asia will need to coordinate their efforts, which can be accomplished by first establishing clear and consistent cryptocurrencies standards and congruent cryptocurrencies requirements intra-regionally and inter-regionally. A possible solution could include setting up working groups or task forces by banks and clearing houses in a consortium for the identification of details along with a central agency on use cases in the capital markets industry. Doing so would create a foundation from which future regulatory collaboration and knowledge sharing could emerge and hopefully strengthen the potential success of cryptocurrencies throughout the region.