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Southeast Asian
governments remain divided about how to regulate cryptocurrencies even as the popularity
of digital assets surges. Regulators need to take concrete steps as cryptocurrencies
increase the threat of online financial fraud and have been used to fund

By Niranjan Marjani

The growing
popularity of cryptocurrencies in Southeast Asia has governments struggling
with the question of how they should be regulated. As cryptocurrencies are privately
controlled and not considered legal tender in most countries, the question of
governance presents new challenges for financial regulators.

Southeast Asian governments
need to coordinate and act quickly, as cryptocurrencies increase the risk of
fraud in the growing e-commerce industry and have also already been used to
channel finances to terrorist groups.

ASEAN countries need to act quickly on cryptocurrency

The popularity of
cryptocurrencies is growing in parallel to the growth of e-commerce in
Southeast Asia. However, ASEAN countries have yet to take a proactive approach
to their regulation.

With the growing
digitization of trade and commerce, online financial fraud is on the rise in
Southeast Asia. A report by ADVANCE.AI, an artificial intelligence company headquartered in
Singapore, showed one in three people in Southeast Asia have experienced online
fraud. The report found that the current boom in e-commerce has led to increased
incidents of online fraud and that online fraud will be a major business risk for
organizations across Southeast Asia in the coming years.

Southeast Asia’s
economy is among the fastest growing in the world and is projected to be the fourth-largest regional economy by 2030. Analysts also expect this growth to boost the
e-commerce market, with the digital economy set to grow from US$31 billion in
2015 to US$197 billion by 2025. Revenue from the e-commerce market in Southeast
Asia in 2021 is expected to be US$67.6 billion, representing annual growth of 10.3%.

companies are also looking to take advantage of Southeast Asia’s growing
digital economy, as the growth of e-commerce has not been matched by growth in
the number of people connected to the banking system. Blockchain companies are
offering cryptocurrency as an alternate mode of payment to the estimated438 million unbanked people in Southeast Asia.

But as the number
of Southeast Asians who are interested in cryptocurrency is growing most are not fully aware
of the risks involved, according to one report by the Organisation for Economic
Co-operation and Development (OECD).

Increased use of cryptocurrency poses a greater risk of online fraud. The ADVANCE.AI report states that 71% of online fraud is due to identity theft caused by problems in identity verification. In cryptocurrency transactions, users can keep their identities hidden, making these transactions more prone to fraud. As Southeast Asia’s digital economy continues to grow, cryptocurrencies may further increase the threat of fraud.

Photo: Infosec Images / shared under a Creative Commons (BY) license

Cryptocurrencies used in terrorism financing

According to a report in
May 2020 by the Philippine Institute for Peace, Violence and Terrorism Research
(PIPVTR), terrorism financing has increased in Southeast Asia, in some cases facilitated
using cryptocurrencies. In the Philippines, terror groups linked to the Islamic
State (IS) have been using cryptocurrencies to finance their terror operations.

The PIPVTR report found
that financing of terrorism through cryptocurrencies involves two phases: the
financiers purchase Bitcoin or other cryptocurrencies and terrorist groups or
their affiliates convert it back into conventional currency. These exchanges
are difficult to trace and the identities of those involved are hidden.

have been used for terror funding in Southeast Asia since at least 2016, when Bahrun Maim, an Indonesian terrorist who fought alongside IS in
Syria, used Bitcoin to finance terror activities in his home country. Indonesia’s
Financial Intelligence Unit, PPATK (Indonesian Financial Transaction Reports
and Analysis Center),reported that Bahrun routed funds to Indonesia through
Bitcoin and Paypal. These funds were used to finance the suicide attack at the Solo Police Headquarters in Central Java in
July 2016. PPATK also found that fraudulent financial transactions linked to
terrorist activities had doubled in 2016 to 25, up from 12 in the previous year.

The legal status of cryptocurrencies varies across Southeast

Southeast Asian
countries have different stands on regulating cryptocurrency.

Brunei, Laos
and Myanmar have banned the use of cryptocurrency. The central banks of these three
countries—Autoriti Monetari Brunei Darussalam (AMBD), the Bank of the Lao PDR
and the Central Bank of Myanmar—consider cryptocurrency transactions as

Malaysia, the Philippines, Singapore and Thailand have all begun to regulate
cryptocurrency transactions and exchanges.

In February 2019, Indonesia’s Commodity Futures Trading Regulatory Agency
(Bappebti) moved to regulate crypto asset trading in the futures exchange. This
regulation lays down the requirements for all future exchanges and clearing houses dealing
with crypto assets, such as capital requirements, security systems and risk
assessment processes.

In Malaysia, the Securities Commission Malaysia (SC) regulates digital currency platforms operating in the country, dictating rules for initial exchange offerings (IEO) and digital asset custodians (DACs). All IEO platforms operating Malaysia must register with the SC.  

Photo: Wowzamboangacity at English Wikipedia, CC BY 3.0, via Wikimedia Commons

In the Philippines, Bangko Sentral ng Pilipinas (BSP) issued its
Guidelines for Virtual Currency Exchanges in 2017, requiring all virtual
currency exchanges to comply with the same reporting and security requirements
as money changers or foreign exchange dealers. Virtual currency exchanges are
also required to work with the country’s Anti-Money Laundering Council. In
January 2021, the BSP expanded the country’s cryptocurrency regulations in line with the
recommendations of the intergovernmental Financial Actions Task Force (FATF).

In Singapore, the Monetary Authority of Singapore (MAS) has moved to regulate
cryptocurrency transactions to preventing money laundering and terror financing
but stated that its laws will not to interfere with innovation. As Singapore’s
Deputy Prime Minister Tharman Shanmugaratnam said of the regulations, “We will
continue to encourage experiments in the blockchain space that may involve the
use of cryptocurrencies. Some of these innovations could turn out to be
socially or economically useful. But equally, we will stay alert to new risks.”

As for Thailand, its government has regulated digital assets including cryptocurrencies
and tokens under the Securities Exchange Commission (SEC) since 2018.

In Vietnam, the government is still considering a legal framework for
cryptocurrency transactions that would allow authorities to manage
e-transactions and legally protect citizens. At present, Vietnam hasn’t
classified cryptocurrencies as a legal mode of payment, “goods and services” or
“properties and assets”.  

Rather than
focusing on regulation, Cambodia announced the launch of its own digital currency,
Bakong, in November 2020. Though not a cryptocurrency, Bakong supports
transactions in riel and US dollars and the Cambodian government hopes to use
it to increase financial inclusion, particularly among the country’s unbanked

At the moment, the
regulation of cryptocurrencies is a challenge for governments across the world
and stances vary widely as to how they should be controlled. As the digital
economy and e-commerce grow, governments must move quickly to address the gaps in
cryptocurrency regulation in order to prevent financial fraud and financing of

(Excerpt) Read more Here | 2021-02-22 14:52:11


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