Thailand Bans the Use of Customer Crypto Assets for Lending and Investment 

Byline: Hannah Parker

Photo by: Dave Kim on Unsplash

The Thai Securities and Exchange Commission (SEC) has banned digital asset service providers focused on investor protection. The new rules prohibit crypto firms from offering crypto lending services that provide returns to investors for their deposits. The rules demand that digital asset operators start warning their customers against the risks of crypto trading at the end of this month.

According to the issued new rules by the Securities and Exchange Commission (SEC), digital asset service providers are required to offer clear warnings highlighting risks associated with crypto trading. All crypto exchange operators must display this message; “Cryptocurrencies carry a high level of risk. Please study and understand the risks of cryptocurrencies thoroughly. You may lose the entire amount of your investment.” 

Details of Thailand’s New Crypto Rules

Before authorising the service, exchange operators must ensure that the warning message is clear and visible before consumers consent and acknowledge the risks. Moreover, exchanges should assess each user to analyse how much a consumer can invest in crypto. Apart from a trading risk disclaimer, the new guidelines prohibit service providers from using customers’ funds for lending or investment. 

Thailand’s SEC banned crypto lending services, prohibiting crypto platforms from offering any form of return on deposited crypto by users. The SEC plans to increase protection for investors from the risks of lending services. The new rules are set to come into effect from July 31 2023.

The Start of the Discussion of the New Crypto Rules

The discussion about the new rules for investor protection began on September 1, 2022, when the SEC approved the need for security warnings by crypto business operators to disclose the risks of trading cryptocurrencies—on September 15 2022, the SEC opened a public hearing on its initiative to ban crypto platforms from providing or supporting digital asset depository services, according to experts at Bitcoin Decode. SEC regulators highlighted that the ban on staking and lending services should protect traders and the general public.

On December 13 2022, Thai’s SEC tightened the rules for crypto to focus on investor protection, citing the importance of tighter control over crypto-related adverts. They highlighted more stringent digital asset regulations to mirror the global market. According to the SEC, they deemed the digital asset industry vulnerable. They needed oversight due to recent trends in crypto advertising to deliver the message that could mislead the audience into investment risks.

The SEC emphasised investor protection, prevention of conflicts of interest, cybersecurity and control over crypto advertising as significant areas to focus on. A working committee has been set up with combined officials and private stakeholders to assess and prepare the relevant amendments to existing regulations.

A massive crypto lending crisis instigated the new investor protection rules during the 2022 bear market. The aftermath of several crypto lending firms that collected billions in customer deposits by promising hefty returns went burst during the bear market. Leading lending firms, including FTX, Three Arrows Capital, the TerraUSD, Celsius Network and the local exchange, Zipmex, filed for bankruptcy, which resulted in investor money getting stuck in the bankruptcy proceedings.

On January 6 2022, Thailand authorities proposed enforcing a 15% capital gain tax on crypto traders and miners, exempting exchanges. The move came because Thai authorities want to strengthen surveillance over the growing local crypto industry. However, on February 2 2022, the Thailand government abandoned the proposed plan after facing an intense backlash against the move.

On March 30 2023, the SEC announced that they were considering lifting the restrictions on the retail investment limits for initial coin offerings (ICO). The Thai regulator said:

“The regulation revision is aimed at investors, digital asset operators, and the market.” The SEC emphasised that lifting the ICO limit for retail investors would allow more retail investments, increasing their risk exposure.

Crypto Lending in Thailand

Thailand is the latest Southeast Asian country to ban crypto lending. On July 3 2023, Singapore banned crypto lending and staking for retail users. The Monetary Authority of Singapore (MAS) requires Digital Payment Token (DPT) service providers to keep customer assets safe under a statutory trust before the end of the year.

The regulator highlighted that such safekeeping is expected to mitigate the risk of misuse or loss of customers’ assets and facilitate the recovery of customers’ assets in case of a DPT service provider’s insolvency. Consumers were advised to be vigilant and avoid dealing with unregulated entities like those based overseas as they risk losing all their assets. 

Despite the strict crypto regulations in Thailand, citizens continue to flock massively to the crypto industry. According to Chinalysis data, the Southeast Asian country is ranked 8th in global crypto adoption in 2022.

With the new rules, Thai regulators continue with strict oversight of the crypto industry with strict regulations, which results in a handful of crypto exchanges operating locally. The move taken by Thai’s SEC to ban the use of customer crypto assets for lending and investment is similar to steps taken by regulators globally to avoid situations like the collapse of the FTX.