Thailand's SEC Opens Doors for Mutual and Private Funds to Invest in Cryptocurrency

Thailand's SEC Paves the Way for Institutional Crypto Investments

The Thai Securities and Exchange Commission (SEC) is taking significant strides to modernize its regulatory framework, allowing mutual and private funds to invest in cryptocurrency products.

This decision, announced on 9 October 2024, comes in response to the rising interest from institutional investors seeking to diversify their portfolios with digital assets.

The proposal suggests that these funds should be permitted to invest in crypto exchange-traded funds (ETFs) listed on U.S. stock exchanges, enabling asset management companies to cater to a growing demand for crypto-related investment products.

How Will the SEC Approach Crypto Regulation?

SEC Deputy Secretary-General Anek Yooyuen highlighted that “investment tokens” will be treated similarly to traditional securities, such as stocks and bonds, due to their comparable characteristics and inherent risks.

The regulator aims to amend existing criteria to facilitate the creation and management of funds dedicated to digital assets.

This move aligns with international trends, particularly following the recent surge in interest for U.S.-listed Bitcoin and Ethereum ETFs, which were approved for trading in January and May 2024, respectively.

According to a rough translation of the proposal,

“The SEC Office sees fit to adjust the criteria for accepting investment in digital assets to be consistent with international development.”

What Are the Implications for Different Asset Classes?

The SEC’s proposal introduces distinct regulations for various types of digital assets, aiming to establish a clear hierarchy of risk.

High-risk assets like Bitcoin will face stricter regulations than stablecoins such as Tether.

For retail mutual funds, the proposed cap for crypto investments is set at 15%, while institutional and ultra-high-net-worth investors will not encounter such restrictions, allowing them greater flexibility in their investment strategies.

How Will Fund Management and Compliance Change?

In tandem with these developments, the SEC is set to revise the management criteria for funds investing in digital assets, focusing on crucial areas such as asset custody, valuation methods, information disclosure, and advertising practices.

Fund managers will be expected to exercise their fiduciary duty in selecting appropriate investment channels and managing the associated risks effectively.

The draft regulations also propose that funds temporarily hold assets like Bitcoin or Ethereum, capping the holding period for trading purposes at five business days.

The SEC elaborated,

“Funds may need to hold crypto assets to buy, sell, or exchange digital assets.”

What Are the SEC's Plans for Market Integrity?

To uphold market integrity, the SEC is contemplating increasing penalties for practices like naked short-selling, improper trading orders, and market manipulation.

Earlier in the year, the SEC took decisive action against unlicensed crypto exchanges operating within Thailand, signaling its commitment to maintaining a robust regulatory environment.

How Will the Digital Asset Regulatory Sandbox Function?

Additionally, the SEC is preparing to launch a Digital Asset Regulatory Sandbox, which will involve ten private firms testing projects that enable the exchange of crypto assets for local currency.

This initiative could potentially lay the groundwork for crypto payments, a practice currently prohibited by Thailand's central bank.

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The retail crypto trading environment remains strong, with Thailand’s largest exchange, Bitkub, reporting nearly $30 million in daily trading volume, according to CoinGecko.

The public is invited to provide feedback on the SEC's proposal until 8 November 2024, with the expectation that final regulations will be established next year.

This progressive approach marks a significant step toward integrating digital assets into the mainstream financial system in Thailand, creating a more favorable environment for institutional investors looking to explore the crypto market.