The Thai Cabinet issued the Royal Decree on Digital Asset Business B.E. 2561 (2018) (the “Digital Assets Decree”) which took effect on 14 May 2018 to regulate the offering of digital tokens and trading of cryptocurrencies and digital tokens (defined as “Digital Assets”) as well as govern the operations of exchanges and intermediaries for Digital Assets under the supervision of the Securities and Exchange Commission of Thailand (“SEC”).
The frameworks of the regulatory regime set out in the Digital Assets Decree are similar to those under the Securities and Exchange Act of Thailand B.E. 2535 (as amended) which govern securities such as shares, warrants or debentures. The SEC has issued draft regulations on the public offering of digital tokens, the approval of ICO portals (that will have similar roles as an underwriter for a public offering of securities) and several other regulations regarding digital assets business operators.
Key highlights of the Digital Assets Decree and the draft of the SEC regulations are summarised below.
Public Offering of Digital Tokens
- Public offering of investment tokens and utility tokens is subject to the approval requirement (whether a primary or secondary offering). The SEC is empowered to prescribe the types of digital tokens which will be exempt from the approval requirements.
- The offeror of digital tokens must be a private company or a public company incorporated in Thailand and its financial statements must meet the requirements of the SEC similar to those applied to an offeror of securities.
- Digital tokens may be offered to institution investors, ultra high net worth investors, venture capital funds and private equity funds. Offering to retail investors will be subject to certain limitations (e.g. retail offering portion must not exceed four times the offer’s shareholders’ equity or 70% of the value of that offer, whichever is higher, and each retail investor may subscribe up to a maximum of THB 300,000).
- The offeror must disclose information about the source code of the smart contract technology used to create the digital tokens.
Public offering of digital tokens must be done through the digital token offering system provider or “ICO portal” approved by the SEC. An ICO portal must be a company incorporated in Thailand with a minimum paid up capital of THB 5 million and will be required to undertake the following roles:
- conduct due diligence on the digital token offering, including the qualifications of the offeror and the source code of the smart contract used to create the digital token;
- take reasonable actions to ensure that the offeror will not disclose any material information which is not set out in the registration statement filed with the SEC;
- conduct KYC and investment suitability test on the investors, categorise investors and monitor the investment limit applicable to the investors; and
- comply with certain post-offering requirements, e.g. notify the SEC if the offeror uses the proceeds from the offering of digital tokens in a manner which is not consistent with the objectives set out in the registration statement or if there is a change or delay in the project for which the funds were raised.
Digital Asset Businesses
The Digital Assets Decree also regulates the business operations associated with the Digital Assets, namely (a) Digital Asset Trading Centre1; (b) Digital Asset Broker2; (c) Digital Asset Trader3; and (d) any other business operations which may be prescribed by the Finance Minister.
These Digital Asset business operators are required to obtain a permit from the Finance Minister. Existing operators of the regulated activities are required to apply for the permit within 90 days and will be allowed to continue their businesses unless their application are denied.
Prevention of Unfair Trading Practices
Any trading or exchange of Digital Assets on a Digital Asset Trading Centre are subject to restrictions to prevent unfair trading practices similar to those imposed on securities, including:
- a dissemination of false statement in relation to the Digital Assets which may affect the trading prices of or the investors’ decision to invest in the Digital Assets;
- a publication of an analysis or projection with respect to the Digital Assets by using information with the knowledge that it is false or incomplete, or distorting the information used in the analysis or projection which may affect the trading prices of or the investors’ decision to invest in the Digital Assets;
- trading or entering into a derivatives agreement in relation to Digital Tokens while possessing non-public, price-sensitive information regarding the offeror of such Digital Tokens or disclosure of such information; and
- market manipulation activities which result in the pubic being misled about trading prices or volumes of the Digital Assets or with an intention to stage an abnormality in the trading prices or volumes of the Digital Assets.
The SEC is currently in the process of conducting a public hearing on the secondary regulations under the Digital Assets Decree.
Apart from the law governing activities related to the Digital Assets, an amendment is also made to the Revenue Code to impose taxes on (a) shared profits or other similar benefits derived from holding Digital Tokens and (b) gains arising from a transfer of cryptocurrency or Digital Tokens.