Regulatory news from Asia: Singapore and Thailand tighten regulations on crypto staking services

The status of the crypto industry in Asia

Since the inception of Bitcoin in 2009, the crypto industry in the Asia-Pacific region has been evolving rapidly. Due to a higher institutional acceptance of digital assets, the Asia-Pacific region emerged as a progressive territory within the crypto landscape. 

The Asia-Pacific region is home to large populations, and some experience limited access to traditional banking services. Since cryptocurrencies are easily accessible, fast and less costly, Asian consumers have started using them for cross-border remittances and e-commerce transactions. Some of the highest ownership rates of cryptocurrencies can be found in Asia-Pacific states such as Japan, Malaysia and Australia. 

If you are interested in finding out the correlation between DeFi, financial freedom and financial inclusion, we suggest reading this article: 'Can I achieve financial freedom with DeFi?'.

Unlike many other authorities worldwide, regulators in the Asia-Pacific region have been more open to introducing cryptocurrencies and blockchain technology. Therefore, countries have put in work to establish suitable regulatory frameworks to support the development and accessibility of crypto assets and crypto service providers. 

As a result, there are over a thousand crypto companies operating within this region, and many of them are seated in Singapore and Hong Kong due to their proactive approach in laying down clear rules.

How does Singapore regulate crypto?

Singapore assumed the role of a model nation in relation to setting out a balanced legal framework for cryptocurrencies and crypto companies. The Monetary Authority of Singapore (MAS) is the country’s financial regulatory body tasked with monitoring risks associated with crypto transactions. 

Crypto is not considered as an officially recognised currency that can be used to fulfil financial obligations, also known as legal tender. However, it has been recognised as an alternative means of payment. 

When it comes to regulating crypto companies known as Digital Payment Token (DPT) providers, the Payment Services Act (PSA) 2019 is the main piece of legislation. The Monetary Authority has been continuously working on improving the regulatory framework of DPT services by issuing frequent guidelines and notices to clarify regulatory requirements.  

For example, to address money laundering and terrorist financing risks, the MAS issued the Notice PSN02 or the Crypto Travel Rule. Crypto regulation in Singapore necessitated that DPT service providers perform customer due diligence, report suspicious transactions and monitor the whole process for risks and signs of misuse. 

Singapore has been regulating crypto assets at a fast pace – on the other hand, the EU has approved the Markets in Crypto Assets (MiCA) regulation and the additional Transfer of Funds Regulation (TFR) in April 2023, and the crypto travel rule will come into effect in December 2024. 

What happened in 2023?

Following a series of crypto lender insolvencies, such as the collapse of Celsius Network, BlockFi, Voyager Digital, Three Arrows Capital, the infamous FTX, and other big crypto players, the MAS stated that DPT service providers must begin to safeguard customer assets under a segregated, statutory trust to mitigate the risks of loss or misuse of assets, along with facilitating an asset recovery procedure. 

In November 2023, the Monetary Authority published its final version of responses regarding the regulatory novelty on DPT service providers which aims to minimise the potential harm to consumers and set out minimum technology and risk-related requirements.  

New measures include the need to identify, mitigate and provide information on conflicts of interest; publish policies and criteria, along with laying down effective procedures to handle consumer complaints and resolve disputes. Additionally, the MAS aims to restrict DPT service providers from facilitating lending and staking of DPT tokens by their retail customers.

Why is the Monetary Authority of Singapore going after crypto staking services?

Staking refers to a process in which holders of crypto assets pledge collateral to validate transactions on the blockchain. As a result, token holders get their original tokens back with a percentage as a reward. 

If you want to learn more about crypto staking, why not read this article: 'What is Staking? Earning Rewards and Minimising Risks of Staking'.

Back in October 2022, the MAS issued a consultation paper on proposed regulatory measures for DPT service providers, and spotted that they offer attractive yields for customers that hold digital payment tokens with them. The Authority further noted that these advertised yields are often much higher than those provided within the traditional financial system. 

As claimed by the MAS, staking tends to be closely linked to the unregulated space of decentralised finance (DeFi) which poses market, liquidity, and cyber risks, despite its small market size. These risks present a potential harm to consumer welfare. 

The MAS thought that the bigger risk of consumer harm in the DeFi space calls for stricter measures for retail investors and customers, and proposed that DPT service providers should not charge, mortgage or pledge the retail customers’ DPTs. 

When it comes to non-retail customers, DPT service providers should provide a document with clear risk disclosures and obtain the customers’ explicit consent.  

The country’s regulator feared that crypto lending or staking activities may involve DPT service providers participating in unregulated DeFi protocols such as automated market makers (AMMs) and liquidity pools to obtain a greater yield, and that new rules are needed to safeguard customers' assets.

How does Thailand regulate crypto?

In the beginning of 2024, the Securities and Exchange Commission (SEC) of Thailand announced a transition to more crypto-friendly regulations. The new framework aims to enhance the growth of the digital asset market while safeguarding cryptocurrency investors and consumers.  

The SEC is the main regulator for cryptocurrencies under the Digital Asset Businesses Decree which focuses on trading, sales, and Initial Coin Offerings (ICOs). All digital asset businesses operating in Thailand and providing crypto services need to obtain licences and fully comply with the rules laid down by the SEC. 

Novelties include the removal of retail investors’ limit for tokens backed by assets such as infrastructure and real estate to make the country’s crypto market able to attract a broader range of investors. 

Additionally, key changes require crypto firms to set up custodial wallet management to improve the security of digital assets held by custodians and exchanges.

Where did Thailand's regulator draw the line?

Amid this crypto-friendly announcement, Thailand’s crypto watchdog decided not to allow Bitcoin exchange-traded funds (ETFs). This cautious approach is similar to the standing taken by South Korea which has also banned spot Bitcoin ETFs in its domestic digital assets market as well as Thailand’s 2023 decision to ban crypto lending and staking services.

Thailand's goal of becoming Southeast Asia's leading trading centre for digital assets has suffered a setback, following regulatory actions to tighten rules in the wake of irregularities and the collapse of broad crypto firms. Let's check out these novelties.

Why did Thailand's SEC ban crypto staking services in 2023?

In July 2023, Thailand’s Securities and Exchange Commission (SEC) decided to ban crypto exchanges from providing lending and staking services due to investor protection. This rule came into effect on 31 July 2023. 

The SEC stated back then that it is forbidden to persuade or advertise the general public or conduct any other activity in the manner of supporting the lending and deposit taking service. 

Similar to the authority in Singapore, the Thai SEC explained that uncharted new technologies have the potential to harm consumers since a lack of regulation may give rise to fraud, speculation, and illegitimate claims about valuation. 

Additionally, the regulator set forth an obligation to create a trading risks’ disclaimer that must be displayed to retail customers and warn them about all potential high-risk activities associated with cryptocurrency trading. The SEC has also introduced a mandatory suitability assessment for users to determine individual trading limits which takes into account risk tolerance and financial capabilities.

Why are countries banning staking for retail investors?

As the crypto industry evolves, regulatory compliance plays an important role in ensuring investor and consumer protection as well as maintaining market dynamics. Asian countries have generally taken a crypto-friendly and proactive path yet decided to draw the line to ensure investors’ protection and consumer welfare. 

This is not happening only in Asia; for example, the U.S. SEC didn’t ban crypto staking generally, but has been cracking down on crypto platforms that offer crypto staking services without registering as securities. 

While all of this seems a bit harsh, the regulators’ main idea was to safeguard investors by forbidding advertising of such services, false valuation as well as introducing transparent risk disclaimers. Time will tell whether this was a good approach. Crypto-friendly doesn't always translate to crypto-easy.