Thailand’s blockchain ecosystem is undoubtedly one of the most vibrant and dynamic in Southeast Asia, with 26 blockchain startups in the city of Bangkok alone as of February 2019. With state agencies such as the Bank of Thailand, Thailand Post, the Electronic Transactions Development Agency, and the Ministry of Finance leading by example in terms of blockchain adoption, Thailand’s blockchain industry is blazing a trail for the region. 

On the crypto front, the Stock Exchange of Thailand had announced in January that it is building a digital assets platform which is expected to go live by next year. Then in May, the Securities and Exchange Commission, Thailand (SEC) decided to take a leap of faith in the local crypto industry by amending the Securities and Exchange Act (henceforth, “the Act”). The amendment allows for issuers to trade their security tokens on primary markets, paving the way for Security Token Offerings (STOs) in Thailand. So what exactly is an STO?

Security Token Offerings: A Primer

An STO is conceptually similar to an Initial Coin Offering (ICO), in that an STO is simply an ICO involving security. The distinction between security tokens issued under an STO and ordinary tokens issued under an ICO is that security tokens engender the additional elements of equity ownership for the benefit of token holders and the pooling of investment funds in the hands of the issuer. Security tokens, therefore, amount to securities investment under the Howey Test, a long-established legal test for securities classification. 

But there are always two sides to the coin. The upside is that security tokens are a much-needed panacea for the fraud-infested and scam-riddled ICO market. The downside, however, is that STOs are generally subject to the applicable securities regulations in the relevant jurisdiction, detracting from the underlying ideology of crypto fundraising to democratize investment.

Thailand’s Regulatory Framework for STOs

Thailand’s STO journey started back in May last year with the enactment of the Royal Decree on Digital Asset Businesses (henceforth, “the Royal Decree”), under which security tokens are regulated as digital tokens with investment features and functions. The Royal Decree effectively laid the groundwork for STOs in Thailand by creating a regulatory framework for the establishment of ICO portals in the country. 

In terms of investment risk, STOs pose less of a threat to public investment funds than ICOs, though this is only so if the STO is subject to proper regulatory oversight. Although the SEC is the state agency responsible for monitoring Thailand’s capital markets, the fact that STOs are a new cryptographic fundraising mechanism leaves it substantively different from conventional fundraising modes. There needs to be an intermediary to carry out due diligence on the Security Token Offering. 

Enter: ICO portals. In Thailand, ICO portals are responsible for conducting due diligence on the credentials of STO proprietors as well as on the characteristics of the security tokens themselves. Any approval granted by an ICO portal is also subject to final approval by the SEC.

Although three ICO portal licenses have been granted, none of the portals have yet to commence operations, as their systems are still pending SEC validation and approval. Nonetheless, crypto advocates in Thailand can rest assured knowing that the door to STOs in Thailand has been opened through amendments to the Act to allow for the trading of security tokens on primary markets. It is unlikely, however, that the SEC will allow retail or individual investors to undertake any STO trades in the near future. Other crypto-forward Asia-Pacific jurisdictions such as Japan and South Korea have yet to undertake any major adoption of security tokens, and across the Pacific, the United States continues to bide its time on creating a regulatory framework.

To date, Thailand has not suffered the misfortune of any major cryptocurrency scam occurring within its jurisdiction. Nonetheless, it is imperative that regulators and the local crypto community remain vigilant, as any illicit crypto activity could dampen investor confidence in the market and even derail the development of STOs in Thailand. Investors should always refer to the SEC’s lists of red-flagged digital tokens and websites in the event of any doubt as to the legitimacy of a token.

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