Thailand is an early mover in regulating digital assets and the country’s regulators are serious about protecting consumers as decentralized finance (DeFi) has seen growing interest here and elsewhere, according to senior executives of blockchain companies.
They view that Thailand’s major regulators – the Bank of Thailand and the Securities and Exchange Commission (SEC) – have been on the right track in ensuring a healthy digital asset ecosystem in the country.
An early mover
“Thailand is really one of the first movers globally, having enacted its dedicated regulatory regime for digital assets all the way back in 2018. This is really making Thailand one of the first in the world to do that,” said Angela Ang, Senior Policy Advisor of TRM Labs, a blockchain intelligence company.
She said that over the past five years, both the Thai central bank and the Thai SEC have reached many key regulatory milestones regarding rules and regulations for governing digital assets.
Ang noted that a recent important development was the SEC’s requirement for licensed digital asset operators to display a risk disclosure announcement on their platforms. Also, the operators were not allowed to offer lending and staking services.
Under the new rules, which take effect on July 31, digital asset service providers are required to display this message on their platforms: “Cryptocurrencies are high risk. Please study and understand the risks of cryptocurrencies thoroughly, because you may lose the entire investment amount.”
‘Iterative approach’
Rahul Advani, Policy Director for Asia-Pacific of Ripple, a leading blockchain technology company, said that the Bank of Thailand and the Thai SEC have built a regulatory framework that is an “iterative approach, one step at a time”.
“The Thai SEC is very focused on consumer protections. And the Bank of Thailand is very focused on the future financial landscape that includes stablecoins and CBDCs,” he said.
A stablecoin is a type of cryptocurrency where the value of the digital asset is pegged to a reference asset, which is either fiat money, exchange-traded commodities (such as precious metals or industrial metals), or another cryptocurrency.
CBDC, which stands for Central Bank Digital Currency, refers to digital currencies issued by central banks.
“We’re committed to working with the Bank of Thailand and the Thai SEC to bring regulatory clarity to the Thai market,” Advani said. “We expect that there will be developments as we continue to work with the regulators. And we expect to see the framework continue to evolve and iterate as the market develops.”
Advani also noted that both the Bank of Thailand and Thai SEC have taken a very clear stance that crypto is not meant to be used as a means of payment.
“This is for financial stability reasons. But we believe digital assets can be used as a means of settlement, and that’s the engagement we’re having with the regulators,” he said.
“So, what that means is your starting point is still a fiat currency. Your end point is still a fiat currency. What the digital asset does is settle between the two currencies.”
Regulatory clarity
Brooks Entwistle, Ripple’s Senior Vice President and Managing Director for Asia Pacific and the Middle East and North Africa (MENA), said that his company “feels very good about where Thailand is headed” regarding regulatory clarity for the digital assets ecosystem.
“We believe it’s a great place to continue to build businesses and for this ecosystem to thrive. And so, from a focus standpoint for Ripple, Thailand is a very important market,” he said.
Entwistle explained that regulatory clarity is necessary to enable companies to build businesses “to the right scale, with the right use cases, and the right capacity”. As a result, investors are attracted to put their money into these businesses, he said.
“This has been a long-term focused market for Ripple and an important market for TRM Labs. Here we’ve had a long relationship with SCB (Siam Commercial Bank),” said Entwistle.
According to the executive, he first came to Thailand 31 years ago as a banker for Goldman Sachs and worked here until the financial crisis of 1997. “This was the biggest market for global investment banks in Asia,” he said.
The three executives were speaking to Thai media following Ripple’s first Thailand Policy Summit held in Bangkok on July 5. The event, organized in collaboration with TRM Labs, represented Ripple’s efforts to solidify its presence in Southeast Asia and the Asia Pacific region.
“Asia Pacific is the biggest business globally for Ripple and it’s appropriate that one of the first Policy Summits we would do would be here in Bangkok in this exciting market that is growing quickly, but also one where dealing and interacting with the regulators is very important,” Entwistle said.
Regarding why Ripple hosted the Policy Summit in Bangkok, he said: “We do it because we think there’s real value in bringing regulators, investors, entrepreneurs, associations and other market participants together for a great half day of content in order to talk about blockchain digital assets and the financial system.”
Blockchain intelligence
TRM Labs’ Ang, who previously worked as a regulator at the Monetary Authority of Singapore (MAS), pointed to the “growing interest in DeFi everywhere in the world, including here in Thailand”.
DeFi uses cryptocurrency and blockchain technology to manage financial transactions.
“Here in Thailand, we are seeing what we call an activity-based approach, which is the same approach that the US and Hong Kong are taking towards decentralized finance,” she said. “It doesn’t matter whether you’re centralized or decentralized, as long as you’re conducting a regulated activity.”
Ang said that blockchain intelligence can help regulators identify high-risk transactions or activities involving cryptocurrencies, such as money laundering.
“Blockchain intelligence has enhanced their ability to identify high-risk transactions and make more informed decisions on where to focus their time and energy,” she said.
The executive said that regulators’ understanding of crypto and blockchain technology “has greatly improved” over the past five years. “But they also expect the private sector to have a more nuanced understanding and approach – not just from a growth and innovation perspective, but from a risk management and compliance perspective,” she said.
According to her, blockchain intelligence tools don’t create effective compliance programs, but they can help to provide a clear snapshot of risk for countries and institutions – at a jurisdiction level, at an individual entity level, and also at a criminal level.
“Many of our clients use this to effectively mitigate the illicit finance risk in their ecosystem and from the public sector perspective to be able to track down and take these illicit actors to task,” Ang said.
Ripple Policy Principles
Advani says that as digital assets and blockchain have gone more mainstream in the last few years, his company develops the Ripple Policy Principles to support regulators in their work towards ensuring regulatory clarity.
The first policy principle involves adopting a globally consistent taxonomy. “We need a clear taxonomy that differentiates between payment tokens, utility tokens, and security tokens,” he explained.
The next principle is about implementing a risk-sensitive regulatory framework that is technology agnostic, principles-based, and risk-based.
“It is the principle of ‘same activity, same risk, same regulation’,” he said.
The third principle is to foster innovation sandboxes. “We believe this allows market participants to test new and innovative solutions in a controlled environment with regulatory oversight,” he explained.
“We already see some examples in Asia of successful sandboxes, such as ones with the DBS Bank in Singapore and the Bank of Thailand,” he said.
The fourth principle is to encourage public-private collaboration, according to Advani.
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