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Regulation Cryptocurrencies in Asia

08/26/2019
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The cryptocurrency market has changed greatly since its initial formation. Due to the wave of the increased demand, many regulators in developed countries issued warnings about the risks to their citizens-investors. Most states were initially not ready to regulate cryptographic markets and determine the legal status of cryptocurrencies along with the rules for market participants.

The process of adopting new laws and determining the procedure for applying the existing ones was difficult. And the approaches of different countries differed greatly: from a complete ICO ban in China, the imposition of severe restrictions on crypto-bourse activities in South Korea, the adoption of a tough position on service tokens by the US Securities Commission - to new laws in Gibraltar, Malta, Estonia, Liechtenstein. At the same time, the attitude of one and the same country to technology, cryptocurrency, and private operations with it - and to public offerings or other actions with third-party funds - may be quite opposite. The bright examples are China and the USA.

Cryptocurrency Regulation

Updating the legal framework for the cryptocurrency market is proceeding both by adopting new laws and the active work of regulators based on existing norms. The regulation is extremely important for the normal development of any market, including cryptocurrency - as shown by the events of 2017 and 2018. The formation of legal conditions for the entry of the market large players is especially important.

Countries that have expressed a positive attitude towards cryptocurrency operations and tokens allocations are adopting special laws collected large investments. And others are quick to follow their example. For example, in Gibraltar, the law on licensing work with the decentralized registry came into force in January this year; it recently defined the rules for crypto funds.

Being some of the major cryptocurrency marketplaces, Asian countries greatly influence the cryptocurrency development and state all over the world. So let’s take a closer look at the regulations in that area to understand how it goes there.

Asia and Cryptocurrency Market

In the first four months of 2019, ICO attracted about 7.3 billion US dollars in all countries of the world, thus, exceeding the number of funds raised through ICO reached the previous year.

In part, this growth is due to the increasing calls for ICO and cryptocurrency regulation. For example, Christine Lagarde from the IMF called for a “clear approach” that would allow market players to take advantage of the cryptocurrencies. Such an approach minimizes the risks of using virtual currencies for fraud, terrorist financing, and money laundering.

So what is the situation with the regulation of cryptocurrency and ICO in Asia? In general, it is a very different approach to this issue in Asian countries. The strictest decision regarding the ICO was made by China, which banned their holding in September 2017. All ICOs were immediately terminated, and the money was returned to investors. How is it going in Japan, Singapore, South Korea, and India?

India

The main three regulators in the area include the Reserve Bank of India, which is also known as RBI; SEBI, aka the Securities and Exchange Board of India; and the Ministry of Finance. They regularly attend meetings of the Financial Stability Board (FSB) and G20 summits.

As part of its responsibility spectrum, the central bank has banned financial institutions from engaging in “or providing services to assist any individual or legal entity in working with or counting on cryptocurrencies. These three regulators are part of a group led by Subhash Chandra Garg, secretary of the Department of Economic Affairs. The civil servant is tasked with drawing up the country's crypto regulation.

According to the government, this group is in the dialog. It was expected that India's cryptocurrencies would be presented to the country's Supreme Court on March 29, but the court postponed consideration of the matter until July 2019.

Japan

At the other side of the cryptocurrency spectrum, the government of Japan has legalized the cryptocurrency as a means of payment in April of 2017. This became possible in accordance with the amended Law on Payment Services.

The main regulator in the state is the Financial Services Agency (FSA), which controls and supervises crypto exchange providers. The letters are required to register with the agency with the purpose of their operations and activities being closely monitored. At the current point of time, there are 20 registered exchange platforms with over 150 companies interested in entering the market.

The FSA also collaborates with a self-regulatory organization for additional market control. What is more, the agency participates in international policy discussions around policy on initial coin offers (ICO).

South Korea

There are three main regulators of cryptographic activities in the country. And the top-level one is the Financial Services Commission (FSC). The regulatory body promotes information exchange and cooperation with international organizations, especially with regard to virtual currency. It is also responsible for analyzing trends and developing policies in the digital currency market. Another field of responsibility of FSC is the development of integrating and coordinating policies for special anti-money laundering systems related to virtual currency.

Meanwhile, the Financial Supervision Authority (FSA) works on the supervision, integrity of the market, overall protection against fraud, and consumer protection from actions related to cryptography. FSS and FSC worked together to create a cryptocurrency control system in the country. However, they have yet to launch any follow-up measures. Meanwhile, ICO is forbidden to run inside the country.

Singapore

The only crypto market regulator in Singapore is the central bank. The body performs many regulatory functions. The body, first of all, controls the prudential susceptibility of crypto assets to banks, insurance companies, and asset managers. Besides, it also regulates all the operations of this kind and institutions that carry out activities related to crypto-assets. Apart from monitoring the risks of financial stability associated with crypto-assets, the central bank has expanded its field of responsibilities.

China

Another member of the FSB, China became a hotbed of Bitcoin. It was just a start. With the time, the country decided to strictly control the cryptocurrency industry, completely banning crypto exchanges in 2017. In addition to the People’s Bank of China (NBK), the country's central bank, five other government agencies regulate activities related to cryptography in the area.

The Chinese Cyberspace Administration monitors online operations related to cryptography and eliminates any problems detected. The Ministry of Industry and Information Technology bans and closes illegal crypto sites. One more regulator is the Ministry of Public Security, which prohibits cryptographic activities that are suspected of illegal criminal activities, including illegal fundraising, fraud, and pyramid schemes.

Talking about China let look on cryptocurrency regulation of Hong Kong - Special Administrative Region of the People's Republic of China

Currently, cryptocurrencies in Hong Kong are considered as “virtual goods” and, therefore, are not regulated. In September 2017, after the ICO was banned in China, the Hong Kong Securities and Futures Commission (SFC) stated that it would take a pragmatic approach. Thus, instead of prohibiting ICO, it would determine the regulatory status in each case depending on individual characteristics.

In some cases, ICO tokens are considered financial credit documents in Hong Kong:

  • if the cryptocurrency is a property that allows the owner to distribute income and/ or participate in the liquidation of the company, then it will most likely be considered as a share by the SFC;
  • if the cryptocurrency is the issuer's debt obligation to be repaid, it will be treated as a bond;
  • if during the ICO, funds are raised to finance the project and the owners of the tokens receive a portion of the income from the project, then the tokens will be considered as an interest in the collective investment scheme (CIS).

In Hong Kong and in other countries that do not have a special ICO regulation regime, crypto trading is a legal and convenient way of making money based on the principle of crowdfunding.

What Does It Mean?

The situation with cryptocurrency is constantly changing, so it is quite difficult to make any predictions. However, as we see, there is a stable trend in countries and regulatory bodies being less strict to the industry and its participants. Thus, we may assume that they see great potential in the crypto market and crypto assets. So there may be a real boom of global cryptocurrency trading in the near future. In the meanwhile, let’s check out the important trends of 2018 and 2019.

Important trends of 2019 & 2020

  • The emergence of institutional players in the markets of Europe, Asia, the USA and others (family offices, funds, etc.);
  • Changing trends: looking for opportunities to establish the regulation instead of avoiding it;
  • The strict control of regulators over the observance of the rules of crypto developers, brokers and other participants of the cryptographic market - along with the establishment of rules for them;
  • Changes in existing and adoption of new rules for cryptographic markets - stock exchanges, exchanges, brokers, storages (news from South Korea, China, Japan, the USA, and other countries are expected);
  • STO instead of ICO (“offer of tokens-securities;” in fact, digitalization of real assets, placement of tokens, which passes the regulator and meets either the standards for placing an issue prospectus, either falls under concessions or meets other requirements);
  • An increase in the number of processes for the prosecution of unfair placements and market players (in private, collective actions, or on the initiative of regulators and law enforcement agencies);
  • Determining the status of cryptocurrencies and tokens, the emergence of opportunities to protect the ownership of them;
  • The development of technology is a positive factor in the development of the market (improvement of security systems, increased speed of operations, and other vital factors);
  • Interstate work on harmonization of cryptographic regulation, approaches to the qualification of cryptocurrencies, tokens, issuing licenses, rules regarding KYC and AML.

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