Published: March 5th, 2021
Thailand’s Securities and Exchange Commission (SEC) has had second thoughts about proposed regulations that would have seriously restricted cryptocurrency trading in the country. The agency’s draft rules would have limited crypto trading to a narrow band of investors with a minimum annual income of USD 33,000 (or one million baht).
An ensuing public backlash following the announcement convinced the regulator to abandon its plans, which it said in a statement this week only ever constituted a set of suggestions.
The agency clearly misjudged the public mood, with small investors decrying the proposals as elitist. If enacted, they would have required potential crypto investors to prove they had at least two years of trading experience under their belt, either in cryptocurrencies or traditional equities and derivatives.
They would also have had to prove a personal annual income of one million baht, a net worth of ten million baht ($330,000), or an investment portfolio valued at five million baht in order to participate in crypto trading. Would-be traders would also need to complete a crypto knowledge test administered by exchanges and score 80 per cent or higher.
The announcement enraged small investors and forex traders, with crypto advocates arguing on social media that the new rules would push middle- and low-income earners out of the cryptocurrency market. In reply, the SEC’s secretary-general said that the proposed limitations were designed to generate discussion and gauge public attitudes, not form an immediate basis for new crypto legislation. Thailand’s Securities Exchange Commission also brought forward a town hall meeting to discuss the proposals from 24th March to 3rd March.
The SEC’s sudden turnaround happened amid rising crypto adoption across the country. Blockchain intelligence firm Chainalysis said in a 2020 report that Thailand is one of Asia’s top crypto nations and just narrowly missed out on the firm’s top-10 league table of countries leading the way on crypto adoption.
The Thai government in Bangkok isn’t oblivious to the opportunities cryptocurrency presents. With travel dominating other sectors in the economy, the country’s tourism authority wants to attract more Japanese cryptocurrency holders to the country and recently ran a feasibility study to see if offering more digital currency payment options at popular tourism destinations would bring in more high-spending vacationers.
Across the globe, regulatory agencies are trying to balance the explosion of interest in cryptocurrencies by retail investors with a legal mandate to protect small investors — which sometimes means protecting them from their own exuberance. US president Biden’s nominee for the US SEC chairman role, Gary Gensler, has said in the past that regulators ‘must protect investors,’ and that crypto exchanges like Binance and Coinbase should come under the jurisdiction of the US SEC or Commodity Futures Trading Commission (CFTC) if they want to operate in the USA.
That’s easier said than done. Crypto regulation will present challenges, too. SEC commissioner Hester Peirce has said that decentralized finance will also test regulators' ability to impose order and create standards that protect new entrants.
In the UK, the country’s Financial Conduct Authority (FCA) has banned the sale of cryptocurrency derivatives to retail investors.
The agency says they’re "ill-suited" to retail customers because of the prevalence of financial crime, absence of reliable valuations, excessive price volatility, lack of investor nous about crypto assets and how to conduct technical or fundamental analysis, plus a lack of what the agency sees as compelling reasons to open up a complex new asset class to retail investors.
Sheldon Mills, interim executive director of strategy and competition at the FCA, has said that '… price volatility, plus the built-in difficulties of crypto asset valuation, put retail investors at a real disadvantage, with a high risk of trading losses in crypto-derivatives.’
Financial regulation law firm Ashurst told the Financial Times last year that the FCA’s ban was a big shock to the market and seen by many market participants as unnecessary. The leverage restrictions on crypto derivatives trading were more than enough to protect investors from big losses, the firm said. However, the ban also made clear the agency’s concern about giving vulnerable investors access to products where transparency can be more ‘subjective.’
The FCA established a blanket ban on the marketing, sale, or distribution of crypto-based futures and options affecting all firms based or trading in the UK.
That move came less than a week after America’s CFTC charged popular crypto derivatives exchange BitMEX with running an unregistered trading platform as well as failing to implement proper anti-money laundering (AML) processes. The US Department of Justice also took action against BitMEX’s owners and took its CTO into custody.
More than USD 400 million worth of Bitcoin moved off the Seychelles-based exchange after the charges were announced.
Back in Great Britain, the FCA recently introduced an option for crypto companies to register as market participants, part one of a process to create a more coherent regulatory framework for crypto assets. That may signal the agency is becoming more comfortable with the emerging asset class. But it sees the need to position crypto trading as fundamentally different from traditional trader-focused products.
In Thailand and elsewhere, regulators want to be sure that retail investors have the level of understanding they need to trade crypto assets effectively while mitigating trading risks. Exchanges and other companies wanting to expand the customer base for derivatives products worry that could hinder adoption and growth.
British crypto derivatives exchanges have expressed opposition in the past to the FCA’s decisive action on the matter. As far back as September 2019, UK-based exchange Coinshares published a letter opposing any decision by the FCA to stop the sale of cryptocurrency derivatives to retail investors.
The FCA countered that, by its projections, the ban has likely saved retail investors more than around £50 million in losses.