The digital assets wave has swept across South-East Asia (SEA). From Axie Infinity (a popular play-to-earn blockchain game) in the Philippines to Cambodia’s Project Bakong (a central bank digital currency), the adoption of digital assets in SEA has been rapid. Digital assets investments in SEA is expected to further increase. This demand for digital assets will likely cut across all wealth and demographic sectors.

One of the challenges that investors may face when investing in digital assets in this region is the uncertainty and inconsistencies in regulatory framework across various jurisdictions in SEA. The support for digital assets across SEA varies from country to country. On one end of the spectrum, we have Singapore, where the digital asset ecosystem is flourishing with well-established cryptocurrency exchanges, tokenisation platforms, custodians, digital assets managers and specialists. On the other, financial institutions are not allowed to offer or facilitate digital asset sales in most countries (such as Indonesia, Cambodia and Myanmar).

For the developing markets in SEA, regulatory frameworks for digital assets are still maturing. In this article, we provide an update on the regulatory frameworks in Cambodia, Myanmar, Thailand and Vietnam on digital assets.

Cambodia

In Cambodia, although there are signs of willingness to recognise and regulate digital assets, there has yet to be an established legal framework to regulate and support the adoption of digital assets such as cryptocurrencies.

The Cambodian government has not approved the issuance or use of any cryptocurrency in the country. Under the current legal framework, cryptocurrencies have not been defined or regulated. It remains illegal to create, distribute, or trade cryptocurrencies in Cambodia. In a joint statement released by the National Bank of Cambodia, the Securities Exchange Commission of Cambodia and the General Commissariat of National Police in 2018, the leaders expressed concern that cryptocurrency-related activities pose risks to the public due to its high volatility, lack of fundamentals and foundation of real underlying assets, as well as the lack of understanding by the public. As cryptocurrencies are sophisticated and belong to a distinct asset class, the government was not in favour of enabling or regulating cryptocurrency-related activities.

Although there was previously a multi-ministry circular issued in relation to licensing requirements for operation of cryptocurrency-related business activities, there have been no further details or announcements on the application requirements or process and no such license has been issued to date. It appears that the ban on cryptocurrency-related activities is still in place and persons or companies acting in breach of this ban may be prosecuted under the laws of Cambodia.

However, the country is not totally averse to digital currencies or assets. In October 2020, the National Bank of Cambodia introduced “Bakong”, their Central Bank Digital Currency (CBDC) equivalent, which aims to curb dependency on the United States dollar and to help strengthen the [Cambodian] riel. Bakong adopts the distributed ledger technology (DLT) and blockchain technology for digital asset management. Through implementing Bakong, the Cambodian government hopes to address the issue of connectivity and interoperability, attain efficiency in payment system and promote financial inclusion. This signals their willingness to recognise, adopt and regulate digital assets.

Myanmar

Myanmar’s military government has earlier this year also announced plans to establish a digital currency to support domestic payments and growth of the Myanmar economy. This came shortly after the announcement by the shadow government (known as the National Unity Government) that it would recognise Tether (USDT) as an official currency.

As it stands, cryptocurrencies are not recognised as legal tender in Myanmar. The Central Bank of Myanmar (CBM) is the sole legal issuer and manager of domestic currency. In an announcement dated 3 May 2019, the CBM expressly banned the use and trading of cryptocurrency. No financial institutions (bank or non-bank) are allowed to trade or deal with cryptocurrency.

In line with this ban, the draft Cybersecurity Law (2022) which was circulated by the Ministry of Transport and Communications in January 2022 also provides that provision of online financial services (including cryptocurrency transactions) without the approval of CBM is illegal. Further, use and trading of cryptocurrency in contravention of foreign exchange regulations or any other Myanmar laws will lead to prosecution under such laws or regulations.

Thailand

Relative to Cambodia and Myanmar, Thailand is steps ahead in terms of developing its regulatory regime for digital assets ownership. Activities relating to digital assets such as digital tokens and cryptocurrencies, including offerings of and dealings with them, are supervised by the Securities and Exchange Commission (SEC) and regulated under the 2018 Emergency Decree on Digital Asset Businesses, under which requirements for Initial Coin Offering (ICO) portals and digital businesses are stipulated. An ICO portal is an electronic system provider offering newly issued digital tokens. “Digital asset business” includes digital asset exchanges, digital asset brokers, digital asset dealers and digital asset managers. Digital assets are considered as goods and subjected to 7% Value Added Tax and gains from the disposal of digital assets are subject to income tax.

In the first quarter of 2022, Thailand’s SEC announced a series of notification aiming to strengthen the regulatory regime for digital assets while safeguarding investors’ interests. There are four main rules and conditions which have been introduced and they apply to apply to digital asset business operators licensed by SEC. The recent updates are as follows:

1. Digital assets as a means of payment (effective 1 April 2022)
2. Custody of customers’ assets (effective 1 March 2022)
3. Privacy coin services (effective 1 April 2022)
4. Providing customers with activity reports (effective 30 March 2022)

(a) Digital assets as a means of payment

In Thailand, all activities relating to the facilitation, support and the use of digital assets as means of payment for goods and services have been prohibited. The new regulation passed by the SEC on digital assets came into effect on 1 April 2022, prohibiting licensed digital asset operators from undertaking the activities of operating and facilitating the use of digital assets (including cryptocurrency and digital tokens) as means of payment for goods and services. Activities that are prohibited under the new SEC regulation include:

• advertisements, solicitation or expressions of readiness;
• provision of systems or tools;
• provision of digital asset wallet services;
• provision of services which transfer Thai Baht from customers’ accounts to accounts of others; and
• provision of services which transfer digital assets from customers’ accounts to accounts of others.

A grace period of 30 days (from 1 April 2022) was given for necessary adjustments to be made in compliance with the new regulation.

If a digital asset operator discovers that a client is using their digital asset accounts for the payments of goods and services, the operator has to notify that customer of the misuse and violation of terms. If the client continues to do so, the operator is obliged to take action against such customer. This applies to all types of business operations relating to digital assets, including digital asset exchanges, brokers, dealers, fund manager and advisory services.

This new regulation seeks to prevent extensive risks to the public, the economy and financial system of Thailand arising from the use of digital assets. Such risks include price volatility in the digital assets, use of digital assets for illegal purposes (e.g., money laundering, terrorist financing, tax evasion etc.) and consumers’ encounters of cyber theft or personal data breaches.

(b) Custody of customers’ assets

First, as a custodian of customers’ assets, digital asset business operators must segregate customers’ assets to be able to clearly identify which assets belong to which investor. If the customers’ digital assets are to be deposited with a third party, the operators must inform the customers accordingly.

Second, custodians need to refrain from seeking benefits from customers’ assets in any other manner other than for the purpose of which the assets are held. This will include refraining from utilising customers’ assets to attain or provide benefits to third parties or the customers themselves and from depositing customers’ digital assets with a custodian that intends to lend out the digital assets (but does not include giving the customer’s assets to a licensed digital asset fund manager for investment in digital assets).

Third, custodians have to reconcile the customers’ assets and keep evidentiary documentation for a period of at least five years.

(c) Privacy coin services

Digital asset business operators are not allowed to provide privacy coin services which can conceal or allow for the concealment of specific transactional information such as the personal data of the transferor, transferee and the transfer amount.

Digital asset business operators that have provided coin services to customers before the effective date of regulation (i.e., 1 April 2022) may continue to provide such services. However, digital asset business operators have to arrange for their customers to reveal the specific transactional information as stated above or obtain an agreement not to engage in information concealment.

(d) Providing customers with activity reports

Digital asset business operators are required by the SEC to provide their customers with a report, within one business day of transaction. This report has to contain specific information about the customers’ digital asset trading, exchanging and investment activity. Operators are to retain the disclosed information for at least 18 months.

From 1 May 2022, this reporting requirement has been fully implemented and operators are obliged to abide by the regulation.

Vietnam

While cryptocurrency trading and its use are gaining popularity globally, Vietnam lacks a legal framework for owning, trading and using cryptocurrencies. Recently, the Vietnam government is considering to issue legal regulations on managing cryptocurrencies to minimise the related risks.

The Vietnamese legislation makes no reference to such transactions. The legal payment instruments have been specifically listed in Article 6 of Decree 80/2016/ND-CP, including cheques, payment orders, collection orders, bank cards and other payment instruments as prescribed by the State Bank of Vietnam (SBV). Therefore, cryptocurrency is not considered as legal means of payment according to the law.

(a) Policies and legislations relation to virtual assets, digital currencies

Currently, possessing, trading and investing in cryptocurrencies is not forbidden nor permitted by the Vietnamese law. Nevertheless, the Vietnamese law has listed the legal payment instruments including cheques, payment orders, collection orders, bank cards and other payment instruments as prescribed by the SBV under Article 6 of Decree 80/2016/ND-CP. Any other payment instruments not listed in the list are considered illegal.¹ As such, cryptocurrency is an illegal means of payment. Additionally, Vietnamese law neither recognises them as an asset nor a currency.

Recently, in March 2022, the Deputy Prime Minister tasked the Ministry of Justice, SBV and the relevant competent authorities to develop a legal framework for virtual assets, virtual currencies, cryptocurrencies, and cryptocurrency related-assets. Accordingly, these governmental authorities must determine the legal documents that need to be amended, supplemented, promulgated and their corresponding timeframe. The Ministry of Finance (MOF) is expected to release a specific timeframe for the implementation of the legal framework though no date has been given for the submission of the bill to the Government. The development comes after the MOF established a research group that has begun an in-depth study of cryptocurrencies, with a view to achieving legislative reform for the industry in the country.

Additionally, the Prime Minister issued many policies in relation to virtual assets and digital currencies in recent years.

Particularly, under Decision No. 1255/QD-TTg dated 21 August 2017 on approving the scheme of completion of the legal framework for the management of virtual assets, digital currencies and virtual currencies, the Prime Minister requested and assigned the relevant authorities to:

1. research the nature of virtual assets and cryptocurrencies according to the experience of other countries and Vietnam;
2. review and evaluate the practical legal framework on virtual assets, digital currencies and virtual currencies of Vietnam, experiences of other countries on providing these assets; and
3. recommend the objectives and tasks for the development and improvement of the legislation on virtual assets, digital currencies and virtual money.

Nevertheless, Vietnam has yet made any significant moves other than Directive 02/CT-NHNN dated 13 April 2018 on control over cryptocurrency assets via the prohibitions of bank transfer transactions related to cryptocurrencies.

In 2021, under Decision 942/QD-TTg dated 15 June 2021 on approving the e-government development strategy towards the digital Government in the period of 2021-2025, with a vision to 2030, the Prime Minister assigned the SBV to develop and pilot the “use of the virtual money based on blockchain technology” in the period from 2021-2025.

Furthermore, blockchain technology has been applied in international payments in the Vietnamese market since 2019. However, there is no clear legal framework in Vietnam on blockchain including blockchain-based currencies such as Bitcoin. As mentioned above, such currencies are prohibited as a financial payment. Under Directive No. 02/CT-NHNN in 2018, the provision of services in relation to these currencies is prohibited. It is also a crime under Vietnamese law to provide, use or issue these currencies. However, the government has actively studied using a sandboxing mechanism for blockchain as a small-scale testing platform with a select number of monitored service providers. According to Decision 942/QD-TTg dated 15 June 2021, the SBV, as the focal point of pilot research, has sent its proposals to the government on the use of virtual money based on blockchain technology. Previously, the Prime Minister issued Decision 2117/QD-TTg dated 16 December 2020 promulgating a list of prioritised technologies for research, development and application to actively participate in Industrial Revolution 4.0, including blockchain. In addition, under Decision No 810/QD-NHNN dated 11 May 2021 of the SBV Governor providing the plan for digital transformation of the banking industry by 2025, with a vision to 2030, the use of virtual money based on blockchain technology is still being studied by the SBV.

Moreover, the Prime Minister also requested the SBV to cooperate with the Ministry of Justice and other relevant authorities to research and propose “the mechanism and policies on national digital currency in the period of 2021-2025” (Decision No. 1813/QD-TTg dated 28 October 2021 on approving the project for the development of non-cash payment in Vietnam in the period of 2021-2025). With the development of science and technology, especially information and communication technology, the rapid penetration and spread of digital currency in Vietnam is inevitable. Therefore, it is likely that there would be more research and legal framework to be issued by the government to allow transactions and ownership of digital currency and virtual assets in Vietnam.

(b) Drafts on new legal framework

In order to meet the industrial revolution 4.0, digital transformation and the development of Industry 4.0 practices, a number of legal frameworks has been taken into consideration. The Ministry of Information and Communications continues to collect opinions on the amended Law on Telecommunications and proposes to develop a Law on Digital technology industry. The draft has supplemented new regulations, updated, and harmonised with the current legal regulations to create the best conditions for the development of the digital technology industry, overcome the shortcomings in the measures to ensure the development of the information technology industry in the past, in line with the reality and development trend of digital technology.

Moreover, under the impact of the industrial revolution 4.0, personal data is becoming more and more precious and the risks of infringing upon personal rights to data have surpassed the protection capacity of traditional legal mechanisms. In Vietnam, before the limitations of regulations on personal data protection in different legal documents, the Government has developed a Decree on personal data protection. On 9 February 2021, the Ministry of Public Security announced the Draft Decree regulating personal data protection and collected opinions from general public. The Draft Decree shall provide clearer definitions/concepts of “basic personal data”, “sensitive personal data”, “data subject” and “data processer”; provide more detailed regulations on processing/controlling personal data, require several measures to protect personal data and set up Personal Data Protection Commission. Once ratified, the coming Decree will change significantly the current legal framework on personal data protection in Vietnam.

Furthermore, the SBV is seeking open opinions on the Draft Decree on a mechanism for controlled testing of Fintech activities in the banking sector. The purpose of the Decree is to promote innovation in the banking sector in Vietnam based on the application of financial technology (Fintech) and solutions, promote financial inclusion in the direction of applying Fintech and solutions to meet the needs of people who do not have a bank account or have not had full access to banking and financial services, limit unfair competition, prevent illegal acts in the name of Fintech and protect the interests of service users.

Another draft decree has been issued is the Draft Decree on Non-Cash Payment. This Draft Decree has supplemented the concept of “electric money (e-money)”, “mobile money”, “e-wallet” and “prepaid card”. “Electronic money” is defined as “the monetary value stored on electronic means prepaid by customers to banks, foreign bank branches, payment intermediary service providers to perform payment transactions and the corresponding value is guaranteed at the bank, including prepaid cards, e-wallets, mobile money” (Article 3.12 of Draft Decree on Non-Cash Payment). Nevertheless, these definitions still receive mixed opinions as they have been conflicted with reality and relevant legal documents.

The cryptocurrency market is developing in Vietnam without any control and management. The Government has issued many passive recommendations and warnings. Any regulations must provide a flexible and favorable environment for cryptocurrency investors and startups. Therefore, implementing a legal device to manage and handle virtual assets is the current challenge for Vietnam’s government.

Conclusion

As set out above, it is clear that these SEA markets are undergoing digital transformation along with the rest of the world. The regulations in this space are developing and there is some degree of uncertainty in the implementation and practical effects arising from such regulations. Investors may find it challenging to understand the effects of regulations or visualise how these regulatory framework may impact their investments in digital assets.

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“6. Non-cash payment instruments in payment transactions (hereinafter referred to as payment instruments), including: Cheques, payment orders, collection orders, bank cards and other payment instruments as prescribed by the State Bank.
7. Illegal payment instruments are payment instruments not included in Clause 6 of this Article.”

Dentons Rodyk thanks and acknowledges Senior Associate Vi Nguyen, Associate Hnin Htet Htet Naing and Intern Tricia Kong for their contributions to this article.