The government of Thailand has responded to growing questions and concerns about cryptocurrency and related assets by passing an emergency decree, which came into effect on Monday.
The decree, administered by the finance minister, has the status of law equivalent to an Act enacted by the Legislative Assembly, but the latter can take months or even years to pass. In this case, authorities felt that uncertainties related to the regulation of digital assets needed to be addressed urgently, according to Wirot Poonsuwan, a Bangkok-based lawyer.
Policymakers are responding to the popularity of raising capital by selling cryptocurrency and digital tokens to the public and using them as a tool for exchange and trade in trading centres, as such activities could affect financial stability, the economic system and the public at large.
The aim of the new decree is to regulate businesses and activities related to digital assets and to serve as a framework for the use of technology to sustainably develop the economy and society.
The objectives are also to support business operators seeking a greater variety of methods to raise capital and, with required transparency, to allow the public to have clear information sufficient for their decision-making, as well as to prevent the exploitation of digital assets from obscure sources to be used to defraud the public or in other crimes.
Under the new law, offerors of digital tokens or operators of digital assets can accept cryptocurrency as compensation or in transactions only when the cryptocurrency is obtained from trades, exchanges or deposits with operators of digital assets, licensed under the decree in accordance with the rules laid down by the Securities and Exchange Commission (SEC).
These licensed operators of digital assets are deemed financial institutions under the anti-money laundering law.
The SEC has a wide-ranging power to stipulate rules to implement the decree, including regulations concerning calculation of the value of digital assets into Thai baht, and issuing and offering digital tokens for sale and the conduct of digital asset business.
An initial public offering (IPO) of digital tokens can be made by a private or public limited company after receiving permission from the SEC, and after the registration statement and draft prospectus have become effective, similar to an IPO of shares, and can be made only through a system service provider approved by the SEC.
The SEC has the power to exempt certain digital tokens and offerings from the filing of a registration statement and draft prospectus.
The IPO of digital tokens is likely to be restricted to certain types of investors, such as institutional investors, to be announced by the SEC.
An operator of digital assets business must receive a licence from the Finance Minister, as recommended by the SEC. Directors and executives of the operator must meet a set of qualifications and must be approved by the SEC.
The operator of digital asset business must follow the rules common to financial institutions, such as:
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having sufficient capital to absorb various risks;
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providing security for the assets of customers;
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providing cybersecurity to prevent hacking and protect customer data;
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adopting proper accounting system with auditor approved by the Office of the SEC;
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adopting KYC (Know Your Customer) measures and anti-terrorism and anti-money laundering safeguards.
The custodial service of the operator must clearly segregate assets of customers from its own assets, so that in case the operator becomes the subject of a debt judgement or is declared bankrupt and its assets are seized or put into receivership, the customers' assets will not be affected.
In the case of any operator whose financial condition or business operation might harm the public, the SEC may allow it to correct the situation within a period of time. Failure to do so could lead to suspension of its licence or ultimately its revocation by the minister.
In cases where a wider impact on the country's financial and economic system is perceived, the finance minister is empowered, with the support of the cabinet, to stop an operator of a digital asset business from carrying out any transaction, or suspend part or all of its business.
Unfair trading practices in the over-the-counter centre or futures contracts for digital assets are covered extensively and taken very seriously. Dissemination of false or misleading information related to the financial condition or operating performance of an offeror of digital tokens or material features of the tokens themselves that could affect their prices or a decision to invest is punishable by a two-year jail term or a fine from 500,000 to 2 million baht. Analysis of the performance of the tokens knowingly based on false, misleading or incomplete information is subject to a similar penalty. So is insider trading.
More lenient civil measures commonly meted out to offenders in the stock market can likewise apply to digital token wrongdoers: compensation equal to the amount illegally gained; prohibition from trading in the over-the-counter centre for 5 years; a ban from being a director or executive of an offeror of tokens for 10 years; and a reimbursement of investigation expenses to the SEC.
In parallel to shares in the stock market, the most severe punishment is for token price manipulation, involving placing trading orders on a continued basis with an intent to cause the price of digital tokens to be inconsistent with normal market conditions. The sanction is a 5-year jail term or a fine from 1 million to 5 million baht.
Notwithstanding the seeming impossibility of cracking formulas used to create digital tokens, the emergency law authorises authorities to enter the premises of a digital asset business and access its computer system, data storage, traffic trails and seize and attach assets, documents, evidence and the entire computer system for examination and further proceedings.
The SEC, realising the advances in international cryptocurrency technology, is also fully equipped to cooperate with foreign authorities to gather information, examine data, or find evidence of legal violations by any person when requested. Evidence obtained from cross-border collaboration can be used in local prosecution, including servers located overseas.