03 Oct 2022

Crypto KYC & AML regulations in APAC

The Asia-Pacific Region (APAC) is a vast economic area that accounts for over half of the world’s population. Although economic, political and demographic indicators vary considerably throughout the region, over the last several years many countries in the area have emerged as some of the strongest and most dynamic when it comes to crypto adoption. 

There are many reasons for the region’s rapid uptake of crypto and digital payments – which will account for 91% of all e-commerce transactions by 2025. These include:

  • High levels of cross-border economic activity and transactions
  • Large numbers of unbanked or underbanked among the general population
  • Young and growing populations that are fast adopters of new technology
  • Proactive and flexible regulatory approach in some (but not all) APAC countries   

Among APAC countries – Indonesia, Singapore, Hong Kong and Vietnam have all been demonstrating very high crypto adoption, with much of the growth taking place in the last 2-3 years. And while many countries have clamped down heavily on crypto (read: China), many others are taking a proactive approach, developing regulatory frameworks that are conducive to a growing crypto economy. 

In this article, we take a look at a selection of crypto Know Your Customer (KYC) and Anti-Money Laundering (AML) regulatory frameworks in various APAC countries. 

Singapore 

Singapore has emerged as a crypto regulation pioneer, establishing well-structured yet stringent rules that are designed to provide high barriers for entry that can vet out all but the most innovative and responsible players. 

In addition to its Payment Services Act (PSA) which regulates Virtual Asset Service Providers (VASPs), Singapore is also planning on introducing the Financial Services and Markets Bill (FSM Bill). This will allow Singapore-registered VASPs to offer services to foreign clients, essentially providing a regulatory framework for Singapore to become a global crypto hub – while continuing to maintain high AML standards. 

Japan

Japan’s Financial Services Agency (FSA) is the main financial regulator in the country. It regulates most crypto activity under the Payment Services Act – any companies that trade or exchange crypto are classified as Crypto Asset Exchange Services (CAES) that fall under the FSA’s remit. 

In addition, businesses that hold crypto for clients are also regulated similarly – there are strict rules on how business and customer wallets need to be separated, and 95% of crypto assets need to be held in cold storage. 

Japan has taken a cautious-yet-open approach to crypto, and the country is still largely cash-based. Registering as a CAES is not simple and requires a local Japanese subsidiary that can comply with FSA regulations. But as a result of its traditional embrace of technology and structured approach to allowing crypto companies to operate, the space has room to grow in the world’s third-largest economy.

South Korea 

South Korea has recently taken a much more welcoming approach to crypto. The country’s new administration plans to enact the  Digital Asset Basic Act (DABA)  in 2023, which will make trading and offering digital assets more simplified and accessible for companies. 

That is welcome news for many VASPs or businesses looking to offer virtual asset services, as the current regulations are largely reliant on banks’ acceptance of official Financial Transaction Reports (FTRs), which are hard to achieve for smaller or foreign companies seeking to cash out their crypto earnings in fiat. 

Once DABA comes into effect, stakeholders in the crypto space hope that it will herald a new lease of life on the space in the country. 

Indonesia 

Indonesia has the world’s highest crypto adoption rates, at around 41% in 2022. 

Cryptocurrencies cannot be used for payments but are traded on Indonesia’s commodities exchange, which is regulated by The Commodity Futures Trading Regulatory Agency (CoFTRA or BAPPEBTI). In order to trade on the commodities exchange, crypto companies need to demonstrate their capitalization, hold 80% of their capital in equity and adhere to reporting and internal organizational standards. 

This flexible approach to crypto regulation – coupled with the country’s immense, growing population and high adoption rates – means that Indonesia is very well on its way to becoming a global crypto leader. 

Malaysia 

Malaysia has emerged as one of the most dynamic countries globally when it comes to crypto regulation. Its young and well-educated population has led to booming crypto adoption rates – over 160% between 2019 and 2021. 

Part of the reason for Malaysia’s booming crypto scene is the relatively flexible regulatory regime encompassing the space. Malaysian regulators do not consider crypto to be either legal tender or a payment tool – they are considered securities and as such are regulated under existing securities laws and AML/CFT processes and reporting standards. 

Even more interestingly, there have recently been proposals by senior government figures on allowing crypto to be used as a legal form of payment, potentially paving the way to mass crypto and digital asset adoption and usage within its economy. 

Vietnam 

Following the crypto boom of 2017, Vietnam emerged as a fervent adopter of crypto. The government moved to curb the rapid uptake in crypto investment and transactions, banning its use for payments that year, but allowing citizens to hold crypto as assets. 

Since then, there has been little movement in terms of creating a regulatory framework for crypto, though the government has announced that it is currently investigating how to create an effective means for regulating virtual assets, which enjoy high adoption in the country. 

With Vietnam’s young population and consistently growing economy over the last two decades, it represents a potential crypto powerhouse in the region – if regulatory certainty can be established for crypto companies to operate securely there.

Philippines 

The Philippines is another enthusiastic crypto adopter in APAC – according to Statista, the country boasted a 28% adoption rate in 2021. 

Although cryptocurrencies are not considered legal tender in the country, its Guidelines for VASPs allow companies to apply for a license that allows them to treat crypto transfers as cross-border transactions. 

This means that businesses need to carry out standard Customer Due Diligence (CDD) on crypto transactions and to report suspicious activity or large transfers over certain thresholds. 

Thailand 

In April this year – in the midst of the recent crypto crash – Thailand banned crypto payments, spurred by deep concerns over price volatility, potential use for money laundering and cyber / identity theft. 

Nevertheless, the Thai Securities and Exchange Commission (SEC) still allows crypto to be traded as assets, and also allows crypto companies to operate and offer services to customers within the country – as long as in-person verification is carried out for opening new accounts. 

Hong Kong

Hong Kong’s latest guidance for crypto and VASPs is the  Joint Circular on Intermediaries’ Virtual Asset Related Activities. 

This stipulates that crypto investments are only available to certified professional investors who have at least HKD 8 million (around USD 1 million) in their portfolio. Retail investors can only access crypto through futures and Exchange Traded Funds (ETFs). For VASPs that offer these options to retail investors, they need to comply with various regulations set out by the Hong Kong Securities and Futures Commission (SFC) and to ensure the retail investors have adequate knowledge of virtual assets and are able to financially absorb the risk of their trading. 

Foreign VASPs that want to register in the territory are not yet able to do so – though there are indications that the SFC will eventually issue clear guidance on licensing requirements. 

Although Hong Kong’s regulatory climate is quite demanding and heavily restricted, there are hopes that as regulations are clarified and fine-tuned, the space will become more accessible to retail investors. 

Conclusion

The APAC region presents a diverse range of crypto and virtual asset regulatory environments that range from highly restrictive to open and very flexible. With such a large proportion of the world’s population and economic activity, it is a pivotal center of global finance – and will likely be the center of crypto too (if the various regulatory environments allow it).

Are you a VASP and want to do business in APAC? Get in touch to find out how KYC-Chain’s automated onboarding solutions can allow your business to reach compliance in multiple jurisdictions. 

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