As institutional and retail interest in Bitcoin and other cryptocurrencies has grown exponentially in recent months, governments across the world have also been grappling with how to respond to price volatility and other risks to consumers.
U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler told the House Committee on Financial Services last week that the US$2 trillion cryptocurrency market could benefit from greater investor protection, including regulation for crypto exchanges. “That could instill great greater confidence,” Gensler said. “Right now there’s not a market regulator around these crypto exchanges and thus there’s really no protection around fraud or manipulation.”
Here in Asia, a similar debate over crypto has been playing out. Should crypto be regulated more, and if so, how? What, if anything, should governments do to protect their citizens from the hazards of speculation, crime and other crypto investment risks?
Crypto policy responses run the gamut and are as varied as the countries themselves. In South Korea, lawmakers are debating a bill to tighten regulations over cryptocurrency exchanges. Singapore, which already regulates cryptocurrency exchanges, is focusing on public education. Other Asian governments, from Hong Kong to India, are in a state of regulatory flux as policymakers grapple over to what degree to protect crypto’s retail investors.
How will South Korea regulate crypto?
In South Korea, regulation of cryptocurrency may be about to kick into high gear.
South Korean lawmaker Kang Min-kuk of the Conservative Party, the country’s major opposition party, announced this week that the party intends to introduce a bill, the “Amendment to the Electronic Finances Act,” to establish a committee under the Financial Services Commission (FSC) to review and approve new cryptocurrencies.
The legislation aims to prevent people from investing in fraudulent cryptocurrencies as well as impose more responsibility on cryptocurrency exchanges to protect investors, such as requiring the exchanges to undertake external audits and to report the results to the government.
The Conservative Party’s announcement follows a similar bill, the “Virtual Asset Industry Act,” which was proposed by South Korea’s ruling Democratic Party last week.
On May 7, Democratic Party lawmaker Lee Yong-woo, the representative of 20 other members of the National Assembly who co-signed the bill, explained that cryptocurrency transactions are already an everyday reality. So rather than debating whether Bitcoin or altcoins have any real value, he said, clearer regulations are needed to protect its users.
As consumer protection is its main objective, the proposed law would require cryptocurrency exchanges to manage conflicts of interest, undertake anti-money laundering and know-your-customer (AML/KYC) measures, and provide insurance for users.
If enacted, the proposed law would expand the amended Act on Reporting and Use of Certain Financial Transaction Information, which requires cryptocurrency businesses to register with Korea Financial Intelligence Unit (FIU) before Sept. 24.
Members of Korea’s blockchain industry seem to welcome this regulatory effort.
“We have anticipated such regulation as it provides more guidance as to how a virtual asset business should operate, and how legitimate businesses could distance themselves from illegal and false representation of virtual asset transactions,” said Kim Jae-jin, director of Korea Blockchain Association, in an interview with Forkast.News.
She added that while South Korea’s crypto industry approves of this initiative, it would keep an eye on how it takes into account the industry’s opinions going forward.
Singapore: ‘best defense is an informed public’
While Korea is looking to tighten its regulatory leash over crypto, Singapore — regarded as one of the crypto-friendliest nations in Asia — has taken a different approach.
Singapore already regulates exchanges offering trading in cryptocurrencies as digital payment token service providers under the Payment Services Act, primarily to deter money laundering and terrorism financing. For now, rather than adding to or expanding current regulations, the Monetary Authority of Singapore (MAS), the country’s central bank and regulator, prefers taking to the stage with a megaphone.
MAS has repeatedly issued warnings to the public that investing in cryptocurrencies, given its price volatility, is risky and not suitable for retail investors.
“Our best defence is an informed public,” said Tharman Shanmugaratnam, MAS’ chairman, in a written reply this week to a parliamentary question on trading and investing in crypto assets. “Consumers are educated to spot red flags such as the promise of quick and substantial profits. If promised returns look too good to be true, they are.”
Earlier this month, MoneySense, Singapore’s national financial education program, launched a campaign to raise awareness of the risks of investment scams involving cryptocurrencies and online trading. This follows media reports of thousands of investors, including Singaporeans, who lost their life savings after investing in Torque, an online cryptocurrency trading platform.
See related article: Asian governments urge ‘extreme caution’ before buying cryptocurrency
Crypto regulations elsewhere in Asia
Elsewhere in Asia, Hong Kong is considering banning retail investors from trading crypto and require all virtual assets trading platforms to obtain licenses to operate in the city.
China, which has already banned cryptocurrency trading, recently introduced new regulations aimed at preventing illegal fundraising in the name of blockchain and cryptocurrency.
At the Boao Forum in April, Li Bo, deputy governor of the PBOC, said that “crypto-assets should be regulated as alternative investments.” Some China watchers took his remarks to mean that China was softening its stance on crypto assets. But Zhaosheng Jiang, director of the Blockchain Research Center for 01 Finance, a Beijing-based Fintech think tank, believed otherwise.
“This meeting just reaffirmed China’s current regulatory approach to the cryptocurrency industry has been consistent since 2013,” said Jiang, in an interview with Forkast.News.
“On the one hand, China actively supports and guides the application and innovation of blockchain technology,” Jiang said. “But on the other hand, it strengthens the supervision of cryptocurrencies and all kinds of tokens, and resolutely cracks down on various illegal activities such as the issuance, financing and trading of cryptocurrencies.”
India, which has been mulling an outright cryptocurrency ban, recently introduced new cryptocurrency rules mandating that companies dealing in cryptocurrencies have to disclose their entire crypto holdings to the government in their financial statements.
Jeremy Britton, the CFO of BostonCoin, told Forkast.News that he believes efforts to ban cryptocurrency in India may prove futile.
“India putting a crypto ban is not going to make people stop using crypto. It’s just going to make people use crypto illegally,” Britton said. “That’s going to make people distrust the government. And they know the entire world is using this […] it’s not going to stop people doing it. In fact, it’ll have the opposite effect.”
See related article: Does India have room for both bitcoin and a CBDC?