The most critical stages in the life-cycle of a new company are often the various levels of capital infusion that allow the company to expand its base, hire employees, fund projects, and otherwise grow as a business. Particularly in the tech space, companies are already familiar with traditional methods of attracting funding, from seed money to angel investors, venture capital, and IPOs. A new addition to these familiar [transactions] is the ICO: the Initial Coin Offering. This model offers exciting new ways of connecting new and growing companies with members of the public interested in funding their development and participating in their growth.
The increased attention to ICOs as funding method comes on the heels of the success of several well-known digital assets such as Ether, Ripple, and Bitcoin. However, ICOs are not merely exciting to members of the public hoping to participate in the issuance of next big digital currency, but also present opportunities to young companies. Traditional capital raises come with limits, including the cost of public registration, caps on the number of equity investors, and the conservative approach of traditional financial institutions. ICOs offer these companies the opportunity to straddle those barriers, to access the public directly and fund their growth through their customers’ enthusiasm and support.
The field of ICOs is still developing rapidly, and deals are becoming increasingly sophisticated in this new area. An important distinction has emerged in the split between “security” and “utility” tokens among recent issuances. A security token has features similar to the equity interest represented by other classes of security; holders might enjoy the right to vote for board members, participate in company governance, or receive part of the proceeds of the company’s earnings. A utility token, on the other hand, allows its holder to make use of a company’s products or services, such as allowing utility token holders to access a company’s website or platform to engage in online transactions, use company software, or otherwise access the company’s technology.
This rapid evolution has brought the ICO market into multiple intersections with new and existing laws and regulations. Prominently, the wide availability of digital assets to the public has securities law implications for issuers of security tokens, and many regulators including the U.S. SEC consider at least some ICOs as public offerings of securities requiring registration. Utility ICOs come with different complexities since their issuers must structure their offerings carefully in order to avoid legal exposure while at the same time ensuring their tokens’ value and usefulness to their customers in the marketplace.
As with any complex transaction, experience and expertise are essential. Silk Legal is proud to have represented our many satisfied ICO clients and is available to offer our counsel on many stages of a successful ICO, including:
You must obtain a license to legally run a crypto exchange, or be a broker or dealer in Thailand. Silk Legal streamlines the convoluted licensing process to save you as much time and money as possible.
The requirements for each type of license differ in the details (mostly the fees) but broadly follow the same template of prerequisites.
The first obstacle for all three licenses is significant; you must already be a registered Thai company. This process alone is complex enough to the uninitiated but we have significant experience and can assist you with obtaining a Foreign Business License (51% Thai ownership minimum).
Secondly, there is a minimum registered capital for each license type:
|License||Minimum Registered Capital|
|Crypto Exchange License||฿50,000,000 for centralized exchange
฿10,000,000 for decentralized exchange
฿2,500,000 to exchange cryptocurrencies
฿2,500,000 to exchange digital tokens
|Crypto Broker License||฿1,000,000 to operate
฿5,000,000 to store client digital assets
฿25,000,000 to manage client assets
|Crypto Dealer License||฿5,000,000 to operate|
Thirdly, there are expectations of duty for all three crypto license types:
Finally, the application process duration is approximately three months at the Securities and Exchange Commission level and then approximately two months at the Ministry of Finance level. These processes can only be performed consecutively.
The regulatory authorities in Thailand which currently govern crypto are the Securities and Exchange Commission (SEC), Bank of Thailand (BOT) and the Ministry of Finance represented by the Minister of Finance.
The governance of crypto is nascent and while piecemeal guidance was given by the BOT in the form of circulars such as in February 2018, when the Bank of Thailand issued a circular, banning financial institutions from being involved in various cryptocurrency transactions (for example advising customers on cryptocurrency investment and trade).
The SEC has the duty and authority to regulate crypto and their operators. When two Royal Decrees were issued on May 13th 2018, they laid down the regulatory framework for crypto, they specified that the Minister of Finance was given the authority to administer the Royal Decrees and the SEC was given the power to designate additional categories of crypto business to be regulated. Hence both the SEC and Minister of Finance were given a statutory footing to govern crypto.
The SEC has responsibility for four areas:
1. To regulate the issuance and offering of cryptocurrencies and digital asset businesses.
2. Set the fees and requirements for the registration and approval of cryptocurrencies and their operators.
3. To establish guidelines for dealing with potential problems.
4. Everything else – this area is a catch all for everything else that was not covered in areas 1,2 and 3.
Future developments affecting the governance of crypto
The SEC is currently working on laws which require all digital asset transactions to be registered with the authorities in accordance with the Royal Decree on Digital Asset Business.
In 2011, the Electronic Transactions Development Agency was tasked to rewrite the Electronic Transactions Act to include the use of smart contracts through blockchain technology. However, the Act has not been amended yet. The date of enactment of the new Act and how blockchain will be regulated under the Act remain unknown.
The combined technological and economic significance of cryptocurrencies is expanding quickly through the world, attracting interest from internet businesses, investment professionals, and others. As with many innovations, the response of governments has taken some time to catch up with the industry. However, the reaction has at last begun, with legislators and regulators now issuing new laws, rules, and regulations. No one approach has achieved consensus, with nations variously attempting to incorporate cryptocurrencies into their securities or banking markets, imposing restrictions to slow the growth of crypto, taking a hands-off approach, or banning them outright. The result has been a patchwork quilt of regulatory compliance laws, with no clear model or endgame.
In Thailand, the Securities and Exchange Commission began to take steps on cryptocurrencies when it announced a pair of new laws in May 2018. Significantly, one of the new laws imposes taxes on gains made from cryptocurrencies—including a 15% withholding tax—but businesses in the crypto space also have obligations under the Royal Decree on Digital Asset Businesses. Notably, “digital asset businesses” (defined as crypto exchanges, brokers, and dealers) are required to register with the SEC or face criminal penalties. Digital asset businesses have a 90-day grace period to begin the registration process, which ends on August 10, and may continue their businesses while their license applications are pending.
Elsewhere in the world, cryptocurrencies face uncertainty and a variety of regulatory postures. The U.S. SEC seems determined to treat cryptocurrencies as securities requiring registration—a legal interpretation that has not been confirmed in a court ruling—and China has banned ICOs. Meanwhile, Japan, Canada, and Switzerland have taken comparatively accommodating postures, although some gray areas exist in each.
This uncertain regulatory environment has obvious implications for businesses and consumers using cryptocurrency as payment, investment professionals holding crypto in their portfolios, companies considering an ICO, and others. Silk Legal offers assitance in navigating Thailand’s regulatory compliance laws in the crypto space, including:
In 2016, the Bank of Thailand (BOT) released the FinTech Regulatory Sandbox Guidelines (FRSG), stipulating the conditions required to operate a fintech business within the Kingdom. BoT claimed that the objective is to accelerate Thailand’s progress in the financial technology sector by encouraging foreign innovation. Innovators are encouraged to streamline existing systems as well as to introduce their own, following the BoT’s goal of supporting Thai business growth.
The FRSG offer more encouragement than restriction and aim to incentivise growth in the fintech sector by offering assistance to both local and foreign businesses, whether they are startups or established firms. They also aim to protect the Thai public from fraud or poorly-managed services that could potentially be damaging by enforcing due diligence and IT security audits. The FRSG encourages networking between fintech startups and banks or other large financial institutions who would otherwise be difficult to reach.
If you are interested in participating in the sandbox programme, please be advised that all other regulations of Thai business governance apply. Silk Legal’s fintech practice group combines our market-leading transactional practices, which enables us to provide a comprehensive service offering to clients operating in or investing in the fintech space. Fast-growing fintech companies appreciate that we are able to provide advice on the regulatory environment affecting financial services, as well as advice on corporate and securities, mergers and acquisitions, licensing, privacy, and intellectual property matters.