WEB3 Regulation - Thailand

Author: Lawyer Chen Shanghai

Thailand is one of the main countries in Southeast Asia with an active cryptocurrency market. Like Vietnam, Thailand is one of the countries with the highest cryptocurrency trading volume in Southeast Asia, and nearly 21.9% of Thai citizens are reported to own cryptocurrencies (the global average is 11.9%). In addition, Thailand's unique regional characteristics also make the development of Thailand's Web3 industry promising. Thailand is often called a paradise for digital nomads, attracting a large number of digital talents with long-term residence visas and relatively low housing costs. These characteristics have a direct and indirect impact on the development of Thailand's IT industry. In addition, Thailand is the largest economy in Southeast Asia after Indonesia, with an Internet penetration rate of about 85%, which has laid a good foundation for the development of the Web3 industry.

1. The development stage of Thailand's cryptocurrency market

Thailand is a relatively early riser in the cryptocurrency market. Bitcoin Co. Ltd, the earliest cryptocurrency exchange in Thailand, began operations in 2013. However, the development of the cryptocurrency market was restricted in the early stages of the market as the Bank of Thailand later declared cryptocurrency-related businesses illegal and closed exchanges.

Five years later, in May 2018, the Thai government issued the "2018 Digital Asset Business Emergency Order". In June of the same year, the Thai Securities Commission approved the operation of seven cryptocurrency exchanges. The central bank also announced the establishment of Thailand's first CBDC project "Inthanon". Later, in July 2018, the Thai Securities and Exchange Commission issued ICO-related regulations, clarifying the regulatory standards for such behavior, becoming the first country in the world to allow initial coin offerings (ICOs) at the time.

The Thai government intends to establish itself as an important web3 center in Asia. However, due to the increase in cryptocurrency-related crimes and illegal transactions, domestic calls for stricter cryptocurrency regulation have begun to rise.

Soon after, the government responded. Previously, Thailand had been allowing cryptocurrency exchanges to open non-face-to-face accounts. However, since May 2021, Thailand has introduced an in-person verification procedure. This measure aims to prevent cryptocurrency-related crimes by accurately tracking the flow and source of cryptocurrencies. In April 2022, the country banned the use of cryptocurrencies as a payment method. In July 2023, the country began to ban cryptocurrency lending.

New cryptocurrency regulations for commercial banks issued by the Bank of Thailand in October 2022. The purpose is to minimize risks by restricting financial institutions from participating in the cryptocurrency market so as not to adversely affect the public. The document requires that any Thai commercial bank or financial holding company’s direct or indirect investment in crypto assets shall not exceed 3% of its total capital. Financial holding companies can engage in cryptocurrency business, but they must obtain approval from the Central Bank of Thailand. Under current regulations, commercial banks are not allowed to directly participate in or conduct cryptocurrency-related business. After a series of negative events related to cryptocurrencies, the Thai government has taken a cautious approach and has made strengthening supervision and protecting investors a priority.

Second, the current situation of Thailand's cryptocurrency market

Currently, there are several cryptocurrency exchanges registered locally in Thailand, mainly Bitkub, Orbix Trade (formerly Satang Pro) and Zipmex. Among them, Bitkub's trading volume accounts for about 75% of the total trading volume, and even soared to about 90% during the 2021 cryptocurrency period. This shows that Thailand, like other countries, is experiencing a winner-takes-all situation in the exchange market. Some well-known foreign exchanges have also begun to explore the local market, such as Upbit, a well-known cryptocurrency exchange in South Korea. Gulf Binance, a new cryptocurrency exchange jointly established by Gulf Energy Development and Binance, is expected to be launched in early 2024. It is foreseeable that in the next few years, the competition for market share among local exchanges in Thailand is expected to become more intense.

The main players in Thailand's cryptocurrency market are commercial banks. Therefore, commercial banks have played a huge role in the development of cryptocurrency. With the enactment of the Cryptocurrency Act in 2018, the Bank of Thailand allowed commercial banks to set up cryptocurrency-related subsidiaries, which led to commercial banks actively participating in the cryptocurrency market. Although commercial banks are still not allowed to directly participate in cryptocurrency-related businesses, they can now effectively invest in cryptocurrencies, issue cryptocurrencies, and act as agents for cryptocurrency-related services through their subsidiaries.

Among the major commercial banks in Thailand, Siam Commercial Bank and Kasikorn Bank, both owned by the Thai royal family, are particularly innovative. Siam Commercial Bank has been actively adopting blockchain technology. In April 2020, it launched a cross-border remittance service using Ripple called "SCB Easy". In July 2021, it obtained a license to operate Ripple Net, Ripple's own payment network.

Although Siam Commercial Bank is prohibited from directly participating in cryptocurrency businesses due to regulations, it operates various Web3-related businesses through its holding company SCBX. In February 2021, the company raised a $50 million Web3 fund through its crypto venture firm "SCBX 10X". In addition, it operates a cryptocurrency listing support service (ICO portal) through SCB 10X's subsidiary "TokenX" and recently formed a joint venture with Hashed, South Korea's largest crypto venture firm. The company, called "Shard Lab", is leading the way in blockchain technology research and experimental product development.

Kasikorn Bank is also playing an active role in revitalizing the Thai cryptocurrency market. Kasikorn Bank operates an ICO portal "Kubix" and a crypto venture firm "Kasikorn X" (KX) through its fintech subsidiary Kasikorn Business Technology Group (KBTG). KX is leading innovation in the cryptocurrency space, launching the cryptocurrency investment analysis platform "BigFin" and the marketplace "Coral" for buying NFTs with fiat currency.

Like Siam Commercial Bank, Kasikorn Bank has also shown a keen interest in the cryptocurrency exchange business. In October 2023, it acquired 97% of the shares of the parent company of the Thai cryptocurrency exchange "Satang Pro" and renamed the exchange "Orbix Trade". Finally, KX has taken a leading position in the market by raising a $100 million fund to support Web3 and AI startups.

3. New Thai Cryptocurrency Rules in 2024

The Thai Securities and Exchange Commission SEC regulates cryptocurrencies under the Digital Assets Act, focusing on areas such as sales, trading, and initial coin offerings (ICOs). The updated framework of the Thai Securities and Exchange Commission removes restrictions on asset-backed tokens for retail investors, sets new rules for custodians, and gives the agency a greater role in preventing risks in digital assets, including:

1. Investment restrictions

Since January 2024, Thailand has lifted restrictions on retail investors' investment in digital tokens backed by real estate or infrastructure, marking a major shift. Previous regulations limited retail investors to 300,000 baht (about $8,400) per investment in ICOs of such assets.

The change is expected to broaden the market for a wider range of investors and support the development of the country's digital asset market.

2. Derivative business

The new regulations require the Thai SEC to be more involved in regulating business expansion in the digital asset field. Companies seeking to expand must first obtain approval from the Thai SEC to ensure that their expansion plans meet regulatory standards.

The Thai SEC currently does not allow Bitcoin ETFs to be traded in its domestic market. This approach is similar to South Korea, which has also decided not to allow such ETFs to enter its domestic market. An official from the Financial Services Commission of South Korea told local media that "the government has consistently adhered to the principle of prohibiting financial institutions from investing in virtual assets in order to stabilize the financial market and protect investors."

3. Issuance of financing

Thai fintech companies have a variety of public fundraising options, including equity and bond crowdfunding, ICO, PP-SME issuance, public issuance through the Alternative Investment Market (MAI) and public issuance through the Stock Exchange of Thailand (SET) - all of which are subject to the jurisdiction of the SEC. The SEC also recently announced the creation of the LiVE trading market specifically for startups and SMEs.

Fintech companies can conduct equity and bond crowdfunding through crowdfunding portals. Fintech companies interested in issuing securities through crowdfunding must be registered in Thailand, have clear business objectives and intend to use the funds received from the offering to operate its business or repay debts incurred by the company to carry out its business, and have no shares listed as securities on the SET. Fintech companies can raise funds from institutional investors through this crowdfunding channel without any restrictions. However, fintech companies can raise up to 20 million baht from retail investors through this crowdfunding channel within 12 months of the initial offering, and another 20 million baht from investments thereafter (bringing the total to 40 million baht). The Thai SEC noted that 69 SMEs and startups may enter the crowdfunding platform in 2021 after successful trials in three pilot projects. 1

4. SEC Regulatory Sandbox

The SEC issued an announcement to increase the types of business that can be included in its regulatory sandbox program:

• Intermediary Group: investment consulting, private equity fund management, mutual fund management, securities lending (SBL) type securities business, brokerage, trading, consulting, derivatives fund management type derivatives business (brokerage, stock trading, underwriting).

• KYC process group.

• After-sales service group, namely securities settlement institutions, securities depository institutions, securities registration institutions and derivatives settlement institutions.

• Product trading system service group, namely electronic trading platform (ETP) services and securities trading centers and derivatives trading centers. 2

Fourth, Thailand's electronic payment regulatory policy

In recent years, electronic payment services (e-Money) have become increasingly popular in Thailand, but any company that wishes to provide such services must obtain an e-payment license. The Minister of Finance issued the license based on the advice of the Bank of Thailand, ensuring that only trustworthy and capable service providers can obtain an e-payment license.

Thailand's regulation of electronic payments mainly includes e-KYC, digital banking and mobile banking using biometrics, alternative credit, peer-to-peer lending, and virtual banks.

The e-KYC process and the use of biometrics in digital and mobile banking were introduced in accordance with the Bank of Thailand's Notice No. FPG. Regulations on Know Your Customer (KYC) for opening deposit accounts in financial institutions, published on August 23, 2019. KYC process banking industry is required to open a savings account in person or via the Internet or mobile phone. Financial institutions are responsible for obtaining identity data and documents to verify the identity of customers, but such data and documents may also be used in electronic form for the e-KYC process. They may also adopt biometric matching technology to improve the efficiency of customer verification. For non-face-to-face verification, financial institutions must take photos of customers and use liveness detection and biometric matching technology to verify the identity of customers.

On September 15, 2020, the Bank of Thailand issued a notice allowing the use of alternative data for credit analysis in the loan approval process. According to the "Notice on the Rules, Procedures and Conditions for Conducting Digital Personal Loan Business", lenders can apply for a digital personal loan business license, which requires lenders to digitize the loan process and use alternative data, including utility and mobile phone payment behavior or income and consumption behavior on e-commerce platforms to assess the borrower's repayment ability or willingness. Lenders can issue digital personal loans with a maximum credit limit of 20,000 baht and a maximum repayment period of 6 months. The actual interest rate charged together with the fees shall not exceed 25% per annum. On July 30, 2020, the BOT issued FPG Notice No. 14/2563, which deals with the regulation of rules, procedures and conditions for operating a peer-to-peer lending electronic system or network business (peer-to-peer lending platform). The prescribed rules allow platform providers to operate peer-to-peer lending platforms by using their business as a channel or intermediary for credit financing through an electronic system or network. On January 13, 2023, in order to establish virtual banks as new financial service providers, the Bank of Thailand issued the Consultation Paper on Virtual Bank License Framework for public hearings. In short, the framework provides that virtual banks can operate full-service banking businesses and must comply with the same regulations as traditional commercial banks, provided that they have certain appropriate qualifications and meet relevant standards. The BOT virtual bank license regulations were issued in July 2023.

Five, finally

Thailand is one of the first countries to embrace the cryptocurrency market. Prime Minister Srettha Thavisin, who was elected in 2023, is not averse to the development of the web3 industry and has even promised to issue about $300 worth of cryptocurrency to each citizen. Since his election, Thailand's ruling party and central bank have been considering issuing utility tokens to citizens, which has brought new hope for the acceptance of cryptocurrency as a form of payment. However, critics believe that these initiatives do not really promote the development of the cryptocurrency market.

There are also some unfavorable factors for the development of the market in Thailand. Thailand has one of the lowest growth rates in Southeast Asia, and the median age of the population is 41 years old, much higher than Vietnam (32 years old). In addition, the Thai government plans to impose taxes on domestic and foreign cryptocurrency transactions starting in 2025, which is also expected to have an impact on the market.