A Guide to Anti-Money Laundering for Crypto Firms
Discover how to stay ahead of the compliance curve in a rapidly evolving regulatory landscape.Download the guide
Launching AI-driven Fraud Detection
Asia is the world’s largest trading market for cryptocurrency, and it has one of its most diverse regulatory environments. Crypto regulations in Asia fall across a spectrum. While many territories have paved the way for the adoption of cryptocurrencies, others have introduced legislation to restrict and even ban them as a reaction to fraud and money laundering risks.
Understanding regulatory surroundings is a crucial first step for firms planning to expand their crypto business – or simply getting to grips with prevailing anti-money laundering (AML) standards for cryptocurrencies in Asia.
Following reviews from the Financial Action Task Force (FATF), Singapore’s AML/CFT regime has been deemed robust – boasting a strong evaluation in a 2019 follow-up to its 2016 mutual evaluation report (MER). Since 2019, the country has begun to craft legislation specifically focused on the crypto industry, where it had previously governed crypto activities as an extension of its general AML and combatting the financing of terrorism (CFT) oversight. The Payment Services Act (PSA) in 2019 (and its amendment in 2021), followed by the Financial Services and Markets Act (FSM) in 2022, provided for the Monetary Authority of Singapore (MAS) to specifically oversee digital payment token (DPT) service providers and virtual asset service providers (VASPs).
MAS has taken other steps to ensure digital asset stability within an innovative environment. Specifically, in August 2022, it announced a plan to consult the Singaporean public regarding the regulation of stablecoin, partly in response to the collapse of TerraUST (UST-USD) in May of the same year. MAS Managing Director Ravi Menon echoed this emphasis on responsible digital token innovation in an August 2022 speech titled “Yes to Digital Asset Innovation, No to Cryptocurrency Speculation”.
On May 6, 2022, MAS issued its fifth DPT Service Provider license to the cryptocurrency platform Coinhako, which was also the first local non-bank crypto exchange to receive preliminary MAS approval in November 2021.
Hong Kong’s new virtual asset service provider (VASP) licensing regime, in effect as of June 2023, will be among the most comprehensive in the world. Until recently, Hong Kong’s regulatory oversight focused almost entirely on security-based cryptoassets. Other types of crypto saw less supervision, and until 2022, virtual asset trading platforms (VATPs) were only regulated if they provided security tokens.
But in June 2022, the Legislative Council announced a bill more closely aligning the VASP regime with its money laundering and terrorist financing (ML/TF) risk assessment. The regime defines virtual assets broadly, covering Bitcoin, altcoins, stablecoins, and governance tokens. The Secretary for Financial Services and the Treasury will determine whether new/emerging assets are virtual assets, suggesting future implications for non-fungible tokens (NFTs). Under the new legislation, VASPs licensed under the Hong Kong Securities and Future Commission (SFC) will be considered financial institutions and subject to the same AML/CFT requirements.
The Japanese regulatory stance toward the crypto sector has been historically friendly. Japan’s Payment Services Act (PSA) classifies cryptocurrencies as legal property, and cryptocurrency exchanges are legal if registered with the Financial Services Agency (FSA).
Still, it has taken steps to tighten certain controls as concerns over money laundering continue to rise. A series of high-profile criminal incidents prompted a broad regulatory review by the FSA, which was ongoing as of September 2018. In August 2018, the FSA also performed a series of crypto exchange inspections, concluding that existing exchanges needed to improve their AML processes and that license applications required stronger vetting procedures. And 2019 saw another round of AML inspections in preparation for the FATF’s fall inspection.
Nonetheless, Japan does not have a specific regulatory body dedicated to all blockchain-based tokens. Instead, it categorizes various tokens and related service providers differently depending on their function. Tokens classified as cryptoassets are subject to the PSA, and cryptoasset exchange service providers (CAESPs) must register as such. Separate regulatory requirements cover other types of tokens. Examples include those representing securities – sometimes considered financial instruments – and those exchangeable for fiat currency, such as certain stablecoins. But tokens not considered part of the financial system, such as NFTs, fall outside Japanese AML/CFT regulation.
The Amendment Act passed in June 2022, modified the Payment Services Act. It aimed to improve financial system stability, harmonizing it with rising digital finance trends. Under this act, any business dealing in stablecoin classified as an electronic payment instrument (EPI) must be registered as an “electronic payment instruments transaction business”. Japan also limited which kinds of institutions could issue stablecoins. And in September 2022, Japan announced an upcoming act that would take effect in May 2023, introducing stricter know-your-customer (KYC) and AML/CFT requirements for cryptoasset exchange providers.
Finally, Japan led the 2023 G7 summit with a focus on the importance of cross-border crypto regulation and central bank digital currencies.
Historically, South Korea has not maintained regulatory frameworks or bodies dedicated to the crypto sector. Instead, it managed cryptoasset risk through ad-hoc, far-reaching prohibitions – making it one of Asia’s most restrictive regulatory environments for cryptocurrency. However, as the global economy increasingly relies on digital assets, signs of change exist.
In March 2021, the Act on Reporting and Using Specified Financial Transaction Information (AML Act) came into effect, giving crypto trading providers six months to:
By September 2021, 37 cryptoasset exchange providers had closed, unable to meet the compliance deadline, but their share in the total market was less than 1 percent.
Under President Suk-Yeol Yoon, who promised more accommodating crypto legislation during his campaign, South Korea may begin taking more regulatory cues from global crypto-friendly regulators. As of 2022, the Digital Asset Basic Act is set to create a more comprehensive regulatory framework for crypto. Scheduled to take effect in 2023, the act will oversee virtual asset service providers (VASPs) and watch over investor interests. And in May 2022, South Korea announced a new cryptoasset regulator, the Digital Assets Committee (DAC).
Cryptocurrency in India is not currently regulated by any central authority. In 2017, the Reserve Bank of India (RBI) issued a circular prohibiting banks and other regulated institutions from providing services to businesses or individuals dealing in cryptocurrencies, making it illegal for Indian residents to buy or sell crypto. However, in March 2020, the Supreme Court of India overturned the ban, stating it was “disproportionate” and unconstitutional. Since then, the Indian government has been considering a crypto regulatory framework.
In 2021, the Indian Minister of State for Finance suggested that a new cryptocurrency bill – the Cryptocurrency and Regulation of Official Digital Currency Bill – would be forthcoming. As of March 2023, the bill remains in process. However, the country has since amended a few of its existing laws in a move to introduce some regulation on cryptocurrencies.
In February 2022, India’s Ministry of Finance published a report that recommended establishing a Digital Currency Regulatory Authority (DCRA) to oversee the use of cryptocurrencies in India. Furthermore, the report proposed the creation of a state-backed “digital rupee” and a framework for regulating private cryptocurrencies. Since then, India has piloted two central bank digital currencies (CBDCs), one wholesale and one retail. While the pilot CDBCs remain active, the government has said it will issue a CBDC within the financial year 2022-23.
Also in February 2022, the Union Budget 2022-2023 included an update regarding the treatment of virtual assets. Specifically, the budget proposed the following:
While Indonesia imposed a blanket ban on cryptocurrencies as a payment instrument in 2017, the country does allow crypto to be traded as a commodity. Since 2019, trading has been officially regulated and overseen by the Commodity Futures Trading Regulatory Agency (BAPPEBTI). The agency’s “whitelist” of accepted cryptocurrencies includes:
In December 2021, Indonesia adopted the Financial Sector Development and Reinforcement bill (P2SK), which became the primary legal reference in the financial service sector. Following this reform, BAPPEBTI announced in January 2023 that a crypto exchange would be set up within the year.
Financial institutions in China have been banned from handling Bitcoin transactions since 2013. In 2017, the People’s Bank of China (PBOC) went further by also restricting initial coin offerings (ICOs).
Regarding crypto exchanges, in 2020, Chinese officials pointed out that cryptocurrencies were recognized as a “virtual commodity,” if not legal tender. But in 2021, China banned all cryptocurrencies and outlawed all domestic cryptocurrency mining. This effectively banned the use of exchanges (both foreign and domestic), prompting a major token sell-off.
In March 2023, People’s Bank of China official Xuan Changneng called for stronger crypto regulations around the world. In support of his point, Changneng highlighted digital currencies’ financial crime risks and suggested recent U.S. bank failures were crypto-related – although U.S. Treasury Under Secretary Nellie Liang has stated that cryptocurrency played no direct part in the failures.
However, there have since been reports that China announced plans in May 2023 to accept license applications from certain crypto exchanges. And at the Beijing Olympics in 2022, the country announced its new CBDC, the e-CNY. Given China’s complex relationship with crypto and global moves in favor of it, this will be a development to watch.
Although cryptocurrencies are legal in Malaysia, they are not considered legal tender. In 2014, Bank Negara Malaysia issued a statement confirming Bitcoin’s non-legal tender status. And in 2022, Malaysia’s Finance Minister reiterated the government’s stance on cryptocurrencies, stating: “Digital assets such as Bitcoin and Ethereum are not suitable to be used as a payment instrument… In general, digital assets are not a store of value and a good medium of exchange.”
Malaysian regulators consider cryptocurrencies to be securities, regulating tokens under securities laws overseen by the Securities Commission Malaysia (SC) under the authority of the Capital Markets and Services Act 2007. The country regulates cryptocurrency exchanges under the Guidelines on Prevention of Money Laundering and Terrorism Financing for Capital Market Intermediaries 2014. Those rules were amended by the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 and the Guidelines on Recognized Markets 2019.
Four registered digital asset exchanges currently operate under cryptocurrency regulations in Malaysia: Luno, MX Global, SINEGY Technologies, and Tokenize Technology. According to the SC, eleven digital assets are currently traded on these regulated exchanges:
Compliance regulations and guidelines require cryptocurrency exchanges in Malaysia to register with the SC to operate. The registration process requires exchanges to demonstrate the fitness of their senior management employees and their ability to manage the AML/CFT risks associated with their business. Once successfully registered, Malaysian cryptocurrency exchanges must abide by AML/CFT obligations, including implementing suitable customer due diligence (CDD) measures and submitting reports to the SC on suspicious customer transactions.
Because Vietnamese law does not directly address cryptocurrency, its regulation has required careful legal interpretation. Regulators have understood this legal silence, along with the fact that crypto is not on the list of payment methods recognized by the State Bank of Vietnam (SBV), to mean that crypto does not have legal status as a means of payment. It is also not recognized as a security, though there has been some debate over whether it could be considered a taxable good.
Trading crypto in Vietnam is neither directly allowed nor banned. Despite this ambiguity, in a 2022 study, Chainalysis found Vietnam to rank highest globally for crypto adoption for the second year in a row (by comparison, the United States ranked fifth). And according to current legal arguments, roughly 20 percent of Vietnamese citizens engaged in the market may have some legal recourse under Vietnamese civil property rights law.
The Securities and Exchange Commission of Thailand (SEC) regulates cryptoassets based on the Emergency Decree on Digital Asset Businesses B.E. 2561 (2018) (otherwise referred to as the Emergency Decree.) Under Thai law, crypto can be legally owned and traded, but not used as a means of payment. Still, income derived from crypto is legal property and is taxable. Thailand has taken steps to support the responsible development of crypto in the Thai economy, initiating Project Inthanon in 2019 to explore the possibility of developing a central bank digital currency (CBDC).
Businesses wishing to provide crypto trading services must obtain a license and follow specific rules surrounding which platforms they can use to offer their services. Importantly, crypto providers in Thailand are classed as financial institutions and are subject to the same AML regulations as other firms, to include:
Until 2023, Taiwanese regulations surrounding crypto were minimal. As of 2018, crypto exchanges and trading services were classified as financial institutions, becoming subject to the same AML requirements. Under the law, AML requirements for crypto exchanges include regular risk assessment reporting and internal controls. Additionally, certain types of crypto are regulated as securities in Taiwan.
However, in April 2023, the country’s Financial Supervisory Commission (FSC) announced plans to establish a dedicated regulatory framework for crypto by September of the same year. This change is thought to have been partially spurred by FTX’s collapse earlier this year, prompting Taiwanese regulators to take swift action to ensure better customer crypto sector stability. For the time being, it is worth noting that non-fungible tokens (NFTs) will not fall under FSC regulation, although there may be plans to create NFT-specific policies.
As global regulators continue shifting in response to the meteoric rise of digital assets – and their connected ML/TF risks – digital asset service providers face a rapidly evolving compliance landscape. The cryptoasset sector is now facing regulations much like those imposed on the fiat financial system, and with those regulations come connected penalties for noncompliance.
Firms seeking to adapt and stay at the cutting edge are seeking ways to continue doing business without facing unintended consequences for noncompliance. But the landscape is new for the crypto industry, so how can firms be sure they are prepared? There are several core best practices firms can observe as they prepare to meet coming regulatory changes, including:
Instead of trying to reinvent the wheel, crypto firms should look for solutions that help automate these compliance processes, including:
Armed with a firm understanding of current regional and national regulations and the most up-to-date AML technology, crypto firms operating in Asia can be leaders in the global crypto revolution.
Discover how to stay ahead of the compliance curve in a rapidly evolving regulatory landscape.Download the guide
Originally published 19 October 2018, updated 19 September 2023
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
Copyright © 2023 IVXS UK Limited (trading as ComplyAdvantage).