Currently, cryptocurrencies and digital tokens are being used as a fundraising tool through digital token offerings. As a medium of exchange, they can also be traded in cryptocurrency and digital token exchanges. In Thailand, the Emergency Decree on Digital Asset Businesses B.E. 2561 (2018) (the ‘Emergency Decree”) was passed to provide a legal mechanism to control this emerging sector of the economy given its significant growth and the risks it posed to the public from money laundering and fraud. This article shall provide a brief overview of the Emergency Decree and some key matters it covers.
According to Section 3 of the Emergency Decree the terms ‘cryptocurrency’ and ‘digital token’ are defined as follows:
‘Cryptocurrency’ means “an electronic data unit created on an electronic system or network for the purpose of being used as a medium of exchange for the acquisition of goods, services or any other rights, or the exchange between digital assets, and shall include any other electronic data units as specified in the notification of the Securities & Exchange Commission (SEC).”
‘Digital Token’ means “an electronic data unit created on an electronic system or network for the purpose of:
(1) Specifying the right of a person to participate in an investment in any project or business;
(2) Specifying the right of a person to acquire specific goods, specific service, or any specific other right under an agreement between the issuer and the holder, and shall include any other electronic data units of right as specified in the notification of the SEC.”
‘Digital Asset’ means “Cryptocurrencies and Digital Tokens”.
“Digital Asset Business” means any of the following businesses:
1. Digital Asset Exchange
2. Digital Asset Broker
3. Digital Asset Dealer
4. Other businesses relating to digital assets as prescribed by the Minister under the recommendation of the SEC.
The Emergency Decree, stipulates rules governing four (4) types of digital asset businesses, which are as follows:
1) Digital Asset Exchanges
This is defined as a “a center or a network established for the purposes of trading or exchanging of digital assets, which operates by matching orders or arranging for the counterparty or providing the system or facilitating a person who wishes to trade or exchange digital assets to be able to enter into an agreement or match the order, in the normal course of business, excluding the center or network in the manner as specified in the notification of the SEC.”
2) Digital Asset Brokers
This means “a person who provides services or holds itself out to the public as available to provide services as a broker or an agent for any person with respect to the trading or exchange of digital assets in the normal course of business, in consideration of a fee or other remuneration, excluding the brokers or agents who act in the manner as specified in the notification of the SEC.”
3) Digital Asset Dealers
This means a “a person who provides services or holds itself out to the public as available to provide services with respect to the trading or exchange of digital assets for its own account in the normal course of business outside the digital asset exchange, excluding the dealers who act in the manner as specified in the notification of the SEC.”
4) Digital Token Portal Service Providers
This means “a provider of an electronic system for an offering of newly issued digital tokens who is responsible for screening the characteristics of digital tokens to be offered, qualifications of the issuer and the completeness and accuracy of registration statement and draft prospectus for the offering of digital tokens or any other information to be disclosed through such service provider.”
Key Provisions in the Emergency Decree regarding Digital Assets
Anti-money Laundering Safeguards
• Section 7 of the Emergency Decree provides anti-money laundering safeguards by providing that Digital Asset Business Operators and Digital Token Portal Service Providers which fall under the Emergency Decree shall be regarded as ‘financial institutions’ under the law governing anti-money laundering and thereby shall comply with such law accordingly.
Public Offerings of Digital Tokens:
• Section 17 – For public offerings of Digital Tokens, the issuer of a Digital Token which intends to offer them must either be a limited company or a public limited company. Moreover, such juristic person must obtain approval from the SEC Office and file a registration statement for the offering of Digital Tokens and the draft prospectus to the SEC Office containing details as specified in the notification of the SEC.
• According to Section 18, if an offeror of digital tokens is granted SEC approval under Section 17 of the Emergency Decree then such juristic person must only offer Digital Tokens to investors in categories and under the conditions as specified in the notification of the SEC.
• Section 19 provides that the offering of Digital Tokens may only be made when the registration statement for the offering and the draft prospectus have become effective. The offering of Digital Tokens must be made through a Digital Token Portal Service Provider who has been granted approval by the SEC.
• Section 21 basically provides a fit and proper person stipulation by requiring that “a director, an executive or a controlling person of the applicant (i.e. the juristic person specified under Section 17) must have the qualifications and shall not have characteristics indicating the lack of appropriateness in respect of trustworthiness in managing business whose offering of Digital Tokens is made to the public as specified in the notification of the SEC.
This section also states that the same requirement applies to the director, executive or controlling person of the Digital Token Portal Service Provider mentioned under Section 19.
• Section 23 of the Emergency Decree is of key significance to offerors of Public Tokens given that it provides that Sections 821, 832, 843, 854, 865 and 89/20 of the Securities and Exchange Act B.E. 2535 shall apply to an offering of Digital Tokens.
Digital Asset Business:
• Section 27 requires that a Digital Asset Business operator must obtain a license from the Minister (Minister of Finance) upon the recommendation of the SEC.
• According to Section 28 of the Emergency Decree no Digital Asset Business Operator can appoint or allow any other person who possesses any of the prohibited characteristics as specified in the notification of the SEC to act as or to perform the duty of a director or executive of the Digital Asset Business Operator.
• Section 29 basically provides that a Digital Asset Business Operator must appoint director(s) or executive(s) under Section 28 only with approval from the SEC Office.
• Section 31 is vitally important from a fiscal standpoint given that it stipulates that, if a Digital Asset Business Operator keeps and maintains its clients’ assets, then it must prepare and keep account of clients’ assets for each client separately from the account of its own and must segregate the clients’ assets from its own and must not use its clients’ assets for any other purposes. The clients’ assets which are kept in the account of the Digital Asset Business Operator shall belong to the clients.
Currency Status of Digital Assets According to Bank of Thailand (BoT)
The BoT has reiterated the status of Digital Assets as not being legal currency in Thailand. Thus, transactions involving Digital Assets are to be considered as barter transactions whereby Digital Assets are traded for goods and services such that the giver and receiver agree to accept the risks involved.
Cryptocurrency Mining
As for the cryptocurrency mining business, this activity does not appear in the Emergency Decree on Digital Asset Business B.E. 2561 (2018) thus it is arguably beyond the rules and regulations of currency exchange.
Therefore, the writer contends that no permission from the BoT is required in order to participate in Cryptocurrency Mining. However, this may not remain the case going forward as the law may in future be amended to cover this activity too.
To learn more please read:
1) The Emergency Decree on Digital Asset Business B.E. 2561 (2018)
2) BoT News Letter No. 49/2564 Re: Using Digital Assets as a medium for Payment of Goods and Services.
1If the registration statement and prospectus contain false statements or particulars or fail to disclose material facts that should have been stated therein, any person who purchases such Digital Token from the promoter and such person is still the owner of such Digital Token who suffers damage from such purchase, shall have the right to claim compensation from the company or the owner of the Digital Token. The purchaser who has a right to claim compensation must have purchased the Digital Token before the facts become apparent. However, the facts must become apparent within one year from the effective date of the registration statement and draft prospectus.
2The following persons shall be liable in accordance with Section 82 jointly with the company or the owner unless such persons can prove that they are not aware of the facts or by their positions they could not have been aware of the truthfulness of the information or the failure to disclose the facts required to be stated:
(1) directors who have the power to bind the company and signed their names in the registration statement and prospectus;
(2) promoters of a public limited company who signed their names in the registration statement and prospectus;
(3) underwriters, auditors, financial advisors, or appraisers of assets who intentionally or with gross negligence signed their names to certify the information in the registration statement and prospectus
3The company or the owner and the persons referred to in Section 83 are not liable to pay compensation in accordance with Section 82 in the following cases:
(1) the subscribers of the Digital Token knew or should have known that the statements or particulars were false or that there was a failure to disclose material facts required to be stated therein;
(2) damage did not arise from the result of the receipt of false information or the failure to disclose material facts required to be stated therein.
4The liability for damages under Section 82 shall be equivalent to the difference between the amount which the person who exercises the right to claim compensation has paid for the acquisition of such Digital Token and the price which should have been, had the disclosure of information been correctly made as specified by the SEC Office, and which price shall not be less than the par value of such Digital Token. Provided that interest at the maximum average rate payable for fixed deposit of one year or more from at least four commercial banks specified by the SEC Office shall be added to the difference.
5The rights to claim for compensation in accordance with Section 82 shall have a limitation period of one year from the date on which the fact that the registration statement and prospectus contained false information became known or should have been known, but not exceeding two years from the effective date of the registration statement and draft prospectus.
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