On 6 January 2022, the Securities and Exchange Commission (the “SEC”) approved, in principle, the criteria for restricting digital asset business operators from facilitating the use of digital assets as a means of payment for goods and services (the “Draft Criteria”).
The SEC, the Bank of Thailand and the Ministry of Finance also announced on 25 January 2022 that they are working together to determine how to regulate the use of digital assets as a means of payment for goods and services.
Currently, the Draft Criteria has not yet come into force and is under the process of public hearings which will end on 8 February 2022. After the hearings, the SEC will consider enacting and issuing a regulation. Note that the Draft Criteria is subject to potential changes prior to its enactment.
In this article, we will provide an overview of the Draft Criteria and discuss possible implications that may arise upon its enactment.
Currently, cryptocurrency, which is a digital asset under the Emergency Decree on Digital Asset Business B.E. 2561 (the “Digital Assets Emergency Decree”), has attracted more attention as means of payment for goods and services in Thailand, particularly in the real estate sector. Despite this, digital assets are not considered legal tender under Thai law. Some digital asset business operators have expanded their businesses to cover services relating to the settlement of payments for goods and services with digital assets. This has been achieved by providing systems to facilitate the receipt of digital assets by merchants (the “Merchant”) as a means of payment for goods and services.
The authorities have raised concerns over the use of digital assets as means of payment. From their point of view, there are various risks and possible negative impacts, including: (i) risks to users (e.g. volatility of the value of cryptocurrencies, which may affect the value of transactions, and cyber espionage); (ii) impact on the stability of payment systems due to the lack of regulation of public blockchains; and (iii) impact on financial stability and on the overall economic system. To address such concerns, the SEC launched the Draft Criteria limiting certain activities of digital asset business operators to prevent the use of such assets to pay for goods and services.
Details of the Draft Criteria approved by the SEC
(1) Scope of Enforcement and Application
The following digital asset business operators, prescribed under the Digital Asset Emergency Decree, will fall under the restrictions and obligations contained in the Draft Criteria (the “Digital Asset Operator”):
- (i) Digital Asset Exchange
- (ii) Digital Asset Broker
- (iii) Digital Asset Dealer
- (iv) Digital Asset Advisory Service
- (v) Digital Asset Fund Manager
(2) Restrictions and Obligations of a Digital Asset Operator
Under the Draft Criteria, a Digital Asset Operator will be required to comply with the following restrictions and obligations:
(2.1) A Digital Asset Operator must not support or encourage the use of digital assets as means of payment, which includes:
- (i) not advertising or performing any activities demonstrating that a digital asset can be used in exchange for goods and services
- (ii) not providing any systems or tools to enable a Merchant or the Merchant’s customers to settle payment for goods or services with digital assets, such as QR Codes for payment with a digital asset, implementing systems for showing the price of goods or services in the units of digital assets, or implementing systems that enable a Merchant to convert units of digital assets to Thai Baht after a payment by the Merchant’s customer
- (iii) not providing any electronic-wallet services to the Merchant for receiving digital assets as payment
- (iv) only transferring Thai Baht to the account of the trader in the case where a trader sells his/her digital assets for Thai Baht
- (v) not providing services for transferring digital assets/money from the trader’s account to another account for the purpose of payments
- (vi) not engaging in any activities in addition to (i) to (v) that supports or encourages the use of digital assets as means of payment
(2.2) A Digital Asset Operator must perform the following activities, if it is found that traders use their digital asset accounts for the purpose payments for goods or services with a digital asset:
- (i) notify such trader on the failure to comply with the terms and conditions of the Digital Business Operator
- (ii) consider taking actions with such traders who have not complied with the service terms and conditions (e.g., cancellation of digital asset trading services, suspension of the digital asset accounts)
Under the Draft Criteria, the restrictions and obligations will come into force on the date prescribed by the official regulation once enacted (the “Effective Date”). In the case that a Digital Asset Operator has entered into an agreement with a Merchant for providing services relating to the use of digital assets as means of payment before the Effective Date, the Digital Asset Operator must comply with the restrictions and obligations prescribed in item (2) of this article within 15 days from the Effective Date.
Consequences and Key Takeaways
Depending on the results of hearings and the final decision of the relevant authorities, the official regulation issued under the Draft Criteria will potentially impact on digital asset businesses, particularly services related to the settlement of payments for goods and services with digital assets. This could create legal issues for Digital Asset Operators and Merchants.
In order to ensure the validity and legality of a transaction, Digital Asset Operators should revisit their operations and relevant agreements entered into or to be entered into with Merchants and other customers. Additionally, if commitments between a Digital Business Operator and a Merchant or any customer have been established and are still effective on the Effective Date, advice on the possible consequences arising from the failure to comply with such commitments should be examined.
Considering the foregoing, operators of digital asset businesses are encouraged to monitor ongoing developments and seek comprehensive advice to prevent any regulatory breach as a result of the enactment of the Draft Criteria into law.