From one part of ASEAN to the next, national policymakers and regulators – including in the Philippines – are still slowly finding their way forward amid the controversies and uncertainties that have marked the rise of so-called virtual currencies, or cryptocurrencies, and other applications of the underlying "blockchain technology."
What is important is that the further development and application of financial innovations in the Philippines and across the region not be unintentionally undercut.
Some governments in Southeast Asia have taken a wait-and-see attitude; others have moved to quickly put in rules and regulations, citing concerns over fraud and the need to better protect and educate investors. That's understandable.
The daily media headlines covering the latest Bitcoin scandal to hit Southeast Asia read as if from a Hollywood script or television drama. This time, ASEAN’s second biggest nation as measured by GDP, Thailand, unfortunately plays a starring role in the latest cryptocurrency-scandal.
According to local media reports, an investor in the Stock Exchange of Thailand and staff at up to 3 Thai banks may well have been complicit in a US$24-million scandal involving a businessman from Finland, a Macau casino and a cryptocurrency called Dragon Coin.
Described by media as an early investor in Bitcoin who made millions from his ventures, the Finnish national Aarni Otava Saarimaa is said to have lost more than 5,500 bitcoins in a well-orchestrated scam. The crypto millionaire has told Thailand investigators that he was duped into sending bitcoin to Thai nationals for reinvestment, to include purchase of Dragon Coin, a cryptocurrency that would be used at a casino in Macau – a special administrative region of China.
And somewhere along the way, funds generated by the sale of Saarimaa’s bitcoins ended up in multiple bank accounts, including one reported to belong to a local Thai actor, Jiratpisit “Boom” Jaravijit, who was arrested while filming in Bangkok.
Police have reportedly also said that several employees of Thai banks failed to report money transfers of 2 million Thai baht (US$61,000) in a violation of financial industry rules that require reporting of such transfers to the country's Anti-Money Laundering Office.
With stories like this, some may well question the pace of technological innovation poised to further disrupt Southeast Asia’s financial services industry.
Yet, large parts of Southeast Asia, and Thailand in particular, already benefit from and remain well-positioned to capitalize on financial technology, or fintech, developments,
This should continue. Indeed, recognizing fintech’s potential to drive even greater access to capital and financial inclusion, Thailand’s central bank – the Bank of Thailand – has taken a leading role in creating an enabling environment for fintech expansion in that nation. The central bank also recently announced that will issue its own digital currency in collaboration with some of the nation's largest banking institutions for use in interbank settlements. The Thai central bank digital currency (CBDC) initiative, dubbed "Project Inthanon," takes its name from Thailand's tallest mountain.
According to local media reports, officials did not want Thailand to fall behind in a rapidly growing digital financial sector. That's an important consideration also for the Philippines.
Lessons from Thailand's central bank and others in the region, including the Monetary Authority of Singapore, can provide important input to policy makers seeking to think through how best, if at all, to encourage and, as necessary, regulate financial innovations.
Here are 8 broad directions for consideration, based on a day-long roundtable co-hosted by the Bank of Thailand and the Milken Institute, the non-profit, non-partisan economic think where I now serve as the inaugural "Asia Fellow," after having served for several years on the board of directors of the Asian Development Bank, based in Manila.
These recommendations were drawn from a recently released whitepaper, “Framing the Issues: The Future of Finance in Thailand,” co-authored by colleagues John Schellhase and Staci Warden of the Milken Institute Center for Financial Markets. That report, available online, discusses how policymakers can best achieve their mandate while working to encourage innovation.
First, evaluate current processes for regulatory reforms to determine whether they are adequately responsive to the pace of technological change.
Second, empower regulators to supervise new technologies and entities.
Third, create forums and processes that encourage coordination and collaboration among relevant government agencies.
Fourth, engage in ongoing consultation with both private-sector incumbents and new entrants.
Fifth, encourage the establishment of responsible industry standard-setting bodies.
Sixth, assess the opportunity—and the proper parameters—for the adoption of open-banking solutions for bank-fintech collaboration.
Seventh, take a strategic approach to the cross-border nature of many financial technologies.
Eighth, establish standards for how businesses – both in the financial services industry and in other sectors – collect, store, and share the online data generated by individuals.
At our Bank of Thailand-Milken Institute roundtable and in other forums, the Governor of the Bank of Thailand, Dr. Veerathai Santiprabhob, laid out three imperatives to guide fintech policymaking and private sector innovation: productivity, inclusivity, and resilience. All three are vitally important.
At the same time, the governor made clear that financial services cannot innovate at the expense of financial stability.
That critical challenge of achieving a balance of innovation and stability is on display increasingly across ASEAN and all of the Indo-Pacific region, as government leaders and policymakers in the financial industry and other sectors seek to navigate a world in transition amidst rising trade tensions, increasing concerns over cybersecurity and growing inequality.
Financial technology innovations that could well benefit the “unbanked” and others who would benefit from greater access to capital could well be stymied by well-intended regulations in the Philippines.
Avoiding this will be all the more important as investigators in Thailand and elsewhere continue to decipher and ultimately respond to the latest cryptocurrency mess. – Rappler.com
Curtis S. Chin, a former US Ambassador to the Asian Development Bank, is managing director of advisory firm RiverPeak Group, LLC. Follow him on Twitter at @CurtisSChin.