Banks and the Crypto Industry: Asia

Bitcoin captured global curiosity when its’ value skyrocketed in 2017. Yet, financial institutions have been slow to add operational value to the crypto market.  

The common denominator among places where governments and banks have restrained digital markets is the lack of transparency and control they have in exchanges. Many research initiatives launched by global fintech leaders remain in developmental stages, while government officials and financial actors grapple with the learning curve of the new technology.

The two biggest crypto concerns of global banks are debt liability from customers who have no protection from market volatility; and security risks associated with unregulated exchanges, such as terrorism funding, scam operations, money laundering and other financial crimes.

Market observers attribute the severe fluctuations in market price to the haphazard restrictions that ill-equipped governing bodies have placed on virtual transactions. Governments and banking executives have leveraged Anti-Money Laundering (AML) laws and “Know Your Customer” (KYC) requirements, among other existing regulations, in order to gain more control and transparency in transactions since the disruption of cryptocurrency in financial markets.

Contrary to restricting crypto exchanges, financial institutions have embraced the revolutionary potential of Blockchain. Over 90 central banks across the globe are engaging in research and development of the technology. Various platforms have been co-opted by banks in an effort to make operations more secure and efficient. Blockchain networks could eliminate high structural costs of financial services, provide a shared ledger that minimizes risk for banks, and strengthen regulatory reporting of banking activity.

Tax authorities, securities and exchange agencies, creditors, and national governments all have a stake in the unregulated crypto market, whether voluntarily or not. In response, leaders from every sector have made a concerted effort to address the new industry, and have promised forward-looking, well-informed strategies to develop regulations as the market evolves.

The role of financial institutions in the tech marketplace is still undetermined, but examining the evolutionary relationship between the two can give an idea of what to expect for the future of banking and fintech.

The list below is based on thorough news research, but in no way can be considered as complete.

 

China

China

The Chinese government has cracked down on crypto activity and suggested banks suspend services to clients using the currency.  Fiat-exchanges and ICOs were banned last September as authorities continue with a strict and critical approach to crypto dealings.

The governor of the People’s Bank of China voiced criticism of virtual currency in a recent press conference where he announced regulators would apply more scrutiny to crypto exchanges out of concern that market speculation will threaten the stability of domestic markets.

In early March, internet financial regulators blocked social media accounts on Wechat, a messaging platform that connected China to overseas crypto exchanges. The government also bans cryptocurrency advertising on social media. Intense regulation and internet monitoring in China has pushed various trading operators to leave the country for crypto-havens like Hong Kong, Japan, and Singapore.

However, some high-ranking Chinese authorities acclaim Blockchain technology and have floated the idea of establishing state-controlled asset trading platforms, but may still exclude cryptocurrencies. Over 225 Blockchain patents were filed in China in 2017, the most in comparison to any other country.

Other tech innovators are not fazed by the intense regulatory obstacles in China and in some places have received funding from local governments for Blockchain initiatives.  The Chinese government launched the Blockchain Industrial Park in Hangzhou, which may spend upward of $2 billion on Blockchain projects, 30% of which is expected to be funded by the government.

 

Japan

Japan

The Japanese crypto industry is the biggest in the world, according to a report from the Japanese Cryptocurrency Business Association. The report reveals there are over 3.5 million active crypto participants in the country and trading volume of Bitcoin hit $97 million in 2017.

The Japanese government passed legislation in April 2017 that requires exchange operators to report cryptocurrency transactions in an effort to ensure banks are in compliance with AML regulations. The crypto community is more cooperative with the government after one of the worlds largest crypto hacks was orchestrated in January on Japanese-based exchange platform, Coincheck.

The fourth largest bank in the world, Mitsubishi UFJ Financial Group, has since announced plans to issue its own cryptocurrency to provide secure exchanges and stabilize market fluctuations in Japan.

In early April, a government-backed research group proposed guidelines and regulations to legalize ICOs. The guidelines have potential to become law in a few years’ time—a notable position, given that Chinese and South Korean governments banned ICOs completely. The proposal recognizes ICOs as securities, similar to the SEC’s approach in the U.S.

Other developments in the crypto market of Japan include the bank Consortium’s recent release of a domestic payments mobile app powered by Ripple technology. The creators of Ripple also partnered with the Saudi Arabian Monetary Authority and Western Union to use the system for payment and settlement transactions between customers.