The SEC is to amend the regulatory frameworks on the criteria of debt-linked ICO and infrastructure-backed ICO offering, which is now open for public hearing

Fresh update on cryptocurrencies: During this time of unprecedented technology innovation and development, there are a plethora of new and technologically advance investment instruments being created in the investment market.  One such investment instrument is an Initial Coin Offering (“ICO”) (a method of raising capital wherein companies sell investors a new digital token or cryptocurrency). ICOs have recently emerged as a novel source of fund raising for startup entrepreneurs. The ease and flexibility intrinsic to ICOs are notably significant incentives for business owners looking to raise funds. In the recent past, Thailand did not have any specific laws governing ICOs and cryptos.  Consequently, there has been somewhat of a “Wild West” situation when it comes to launching ICOs and investing in cryptos and digital tokens that are based in or related to Thailand. In an ICO process, the ICO issuer will offer digital tokens in exchange for cryptocurrency, such as Bitcoin or Ether. Two such ICOs are debt-linked ICO and infrastructure-backed ICO (Infra-backed ICO). 

A debt-linked ICO is a digital representation of debt or cash analogous to a loan with an interest rate tied to a specific principal amount. Its investment structure scheme and yield are similar to debt investment. An Infra-backed ICO is an asset-backed digital token which derives its value based on the underlying asset, i.e. infrastructure or income of business units.

Following SEC meeting No. 1/2023 held on 5 January 2023, the SEC now has a roadmap for an SEC mandate to deal with investments related to cryptocurrency infrastructure; in order to improve the digital economy’s environment for investors as well as make it safer and more sustainable. This upcoming new regulation will regulate the criteria for offerings of debt-linked and infra-backed ICOs so that risk is minimised for investors. In addition to the goal of safeguarding investors, this new amendment also aims to protect investors from potential regulatory arbitrage (regulatory arbitrage is a corporate practice of utilising more favourable laws in one jurisdiction to circumvent less favourable regulations elsewhere. This practice is often legal as it takes advantage of existing loopholes; however, it is often considered unethical) for assets which are identical or similar to financial instruments in different markets. 

The main points for amendment are as follows:

(1) Debt-linked ICO: This digital token indicates a fixed return. There is no variable affected by the business operation result of the project which would further cause fluctuation, and there is the potential for extra return. The brief criteria for this token is to conduct a reliability assessment report of the project with compulsory disclosure for further consideration by an independent expert. Said report will focus on the factors involving the result of determination, particularly risk assessment on the capability of debt repayment on the project; and factors to help with analysis of potential returns, which will later also help the investor for their further understanding and investment analysis.

(2) Infra-backed ICO: This digital token offers a return from income flow incurred by infrastructure business units. The SEC is taking into account the similarity between infrastructure trust and  Infra-backed ICO to support the regulatory adjustment  where  the criteria for an infra-backed ICO would also need to additionally include the mandatory clarification on details for disclosure of underlying assets for the purpose of conducting investment analysis, check-up, asset valuation and due diligence, as well as to impose provisions upon the asset management of the trustee and the issuer for their compulsory obligations, as to be further proposed.

The SEC commenced a public hearing period in late 2022 on, among others, the regulatory controls for ICO portals which serve as financial advisors to digital token issuers, which will be open until 21 March 2023. In such regard, the SEC can be contacted at: thapanee@sec.or.th, amphornp@sec.or.th or  chatchan@sec.or.th, or through the below link:
https://www.sec.or.th/TH/Pages/PB_Detail.aspx?SECID=879

This Newsletter is intended merely to provide a regulatory overview and is not intended to be comprehensive; it is NOT a provision of legal advice. Should you have any questions on this or on other areas of law, please do not hesitate to contact the following:

Nuttaros Tangprasitti
Partner
Natrada Ruangwuttitikul
Attorney-at-Law

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