The regulatory aspect of digital token offerings has never been straightforward for players in the ecosystem, including issuers, investors, exchanges and even regulatory authorities themselves. While the volume of digital token offerings has declined, many regulators around the world continue to take steps to reinforce their regulatory regime.
In late 2018, the Monetary Authority of Singapore (MAS) released an updated guide to digital token offerings to include illustrations for stablecoins and asset-backed digital tokens. Generally, Singapore continues to rely on its existing securities law framework to regulate digital token offerings. How about the level of oversight? It’s there for sure - from July 2017 to 31 December 2018, the MAS issued warnings to 8 digital token exchanges and 1 ICO issuer.
Across the causeway, the Malaysia Securities Commission released regulations (which sets out definitions of digital token and digital currency) to formally regulate certain digital assets as securities under securities law. The Securities Commission also released a consultation paper which sets out a proposed regulatory framework which covers, among other things, the authorisation for issuance of ICOs, content requirements of the whitepaper, and registration of the whitepaper.
If Malaysia’s approach sounds familiar to you, that’s because it largely follows Thailand’s lead.
Back in 2018, Thailand’s proposed regulations for ICOs was very much a breakthrough. The Securities and Exchange Commission of Thailand (SEC) announced the Digital Assets Business Degree, which regulated businesses related to digital assets. All offers of digital tokens had to be approved and the prospectus filed. Security token offerings, however, remain to be governed by the Securities and Exchange Act. The SEC intends to issue guidelines to allow companies to tokenise securities.
In addition, the offering must be undertaken through an approved ICO portal. Such ICO portals screen ICOs, conduct due diligence, verify KYC procedures and audit smart contract source codes. In mid-March 2019, it was widely reported that the first ICO portal (a foreign company) was approved by the SEC from a pool of 7-8 applicants.
At this stage, it is too early to tell whether Thailand’s approach will succeed.
Regulation is often touted as an enabler – greater regulatory oversight will instil more confidence and lead to new entrants (hopefully institutional investors) in the market. However, more regulation inevitably leads to an extended time to market and increased compliance costs. You might be wondering what will be the cumulative impact on the digital token offerings landscape. Would it transform into a playground for large corporates and financial institutions? Quite possibly, and I believe they will be welcomed with open arms.