Part 1: India, China, Japan, and South Korea
Cryptocurrency innovation can wither or flourish within a country depending on the regulatory stance taken by national governments. Heavy restrictions around ICOs may see entrepreneurs moving abroad to raise money. Strong regulations around cryptocurrency trading can create sufficient financial and operational burdens on startups to strangle innovation. Too little governance can give rise to scam cultures that harm trust and confidence in the long term. In other words, regulation is important.
Asia not only constitutes the biggest trading market for cryptocurrencies, it is arguably the biggest hub of cryptocurrency innovation worldwide. News and analysis is published on a daily basis regarding regulatory developments in the US market and their implications on the global market. Yet relatively little attention is given to regulatory activity elsewhere, except for when a major change of law occurred. To help remedy this, we have compiled a snapshot of the attitudes of governments and core institutions towards cryptocurrencies in Asia’s biggest markets:
The Indian government has stated that their focus is on combatting the use of cryptocurrencies for criminal activity. It does not recognise cryptocurrency as legal tender. In the words of finance minister Arun Jaitley: “The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system.”
In April 2018, the Reserve Bank of India, in an attack on cryptocurrency exchanges and traders, ordered banks to close all cryptocurrency-related accounts within three months. The order has been challenged in court, with a final hearing due on 11 September. The case has attracted the interest and involvement of the Indian government, the Securities and Exchange Board of India, the Enforcement Directorate, and the income tax department.
In December 2013, the People’s Bank of China (PBoC) stated that private parties can hold and trade cryptocurrencies in China, while financial institutions cannot, calling Bitcoin a virtual good that does not have legal tender status. It enforced this statement in April 2014, ordering commercial banks and payment companies to close Bitcoin trading accounts within two weeks.
In January 2017, the PBoC issued warnings to cryptocurrency exchanges, urging them to comply with the “relevant laws and regulations.” In September 2017, the PBoC issued a ban on Initial Coin Offerings (ICOs).
In spite of this strict regulation, the PBoC’s Institute of International Finance released a report identifying cryptocurrencies as a top priority in 2018. Moreover, industry insiders have argued that China is one of the “biggest advocates of blockchain technology in the world.” This support can be seen in how blockchain technology is being incorporated into major government projects, such as the Belt and Road Initiative.
In April 2017, Japan’s Financial Services Agency (FSA) recognised Bitcoin as both an asset and a method of payment. It also required that cryptocurrency exchanges register with the government and comply with a strict set of demands with respect to KYC, technical proficiency, security and auditing. On June 2018, it tightened this regulation by way of ordering business improvement orders to a number of major exchanges.
Currently, there is no legal framework for ICOs in Japan. However, a government-backed study group has laid out basic guidelines for such a framework. The guidelines set out rules for identifying investors, preventing money laundering, tracking progress on projects, and protecting existing equity and debt holders. The guidelines are being deliberated by the FSA, but may not come into law for another few years.
- South Korea
Bitcoin is not recognised as legal tender in South Korea, but it is not illegal either. In March, 2014, while it did not have any clear regulation in place, South Korea demonstrated that it will prosecute those using cryptocurrencies for illegal activities.
In September 2017, South Korea’s Financial Services Commission (FSC) instated a ban on ICOs. It also made margin trading of cryptocurrencies illegal and said it would conduct on-site inspections and analyses of cryptocurrency companies, with a focus on “amend[ing] unfair terms and conditions, including arbitrary withdrawal restrictions.” However, in March 2018, a committee of Korea’s National Assembly stated it was seeking to reverse the ICO ban and bring a stronger legal framework around cryptocurrencies.
In June 2018, South Korea’s Financial Intelligence Unit (KFIU) said it would regulate cryptocurrency exchanges like banks. Its focus would be on implementing anti-money laundering policies and preventing the use of cryptocurrencies for financing illicit organizations.