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Crypto Data From Asia -- OECD Report Signals Expanding Regulatory Perimeter

This morning, while evaluating official activity over the last 24 hours globally regarding cryptocurrency and FinTech regulation, this speech in Malaysia caught our attention.  The speech highlighted impressively high crypto usage data.  The data was eye-popping enough to justify delving into the 60+ page report released by the OECD today.

Background:  Earlier this year, the OECD conducted a series of online surveys in three Asian nations (Malaysia, Philippines, and Vietnam).  They collected responses from 3006 individuals (roughly 1000 per country).  Gender and age cohorts were limited in order to maintain equivalence with the broader population in each country.

Crypto Holdings:  If the responses are indicative of the rest of the population in these countries, the distribution of cryptocurrency holdings is both broad and deep....despite signfiicant restrictions (and bans) on using cryptocurrencies in the economy.  Specifically, the high water mark was in Vietnam, where 35% of respondents claim to own cryptocurrencies compared with 32% in the Philippines and 23% in Malaysia.

Questions About The Survey Sample:  Demographic data released by the OECD within the report raises some obvious questions about whether the suvey sampling was indeed representative of the population.  While controlling for age and gender, the survey did not control for education levels.  It seems the distribution of crypto ownership in the three countries is dramatically skewed to educated elites.

In Malaysia, 20% of respondents held PhDs and 27% held bachelors degrees.  Similar skewness can be seen in the Philippines, where a whopping 53% of respondents claimed to hold PhDs and another 35% held bachelors.  Vietnam was even more skewed, with 54% holding PhDs and 40% holding Bachelors degrees.

In most countries, highly educated individuals would be considered sophisticated investors for which consumer protection regulations would be assumed to hold minimal importance.  Yet when the OECD asked these respondents to assess how well they think they understood cryptoassets, significantly fewer people indicated they believed they understood these instruments "very well":  11% in Malaysia, 17% in Philippines, 23% in Vietnam.

Potentially more problematically, the sources of information regarding tehse assets were predominantly online resources (e.g., white papers) and social media.  As discussed HERE last week on our company blog, the shift in information consumption patterns increases reader vulnerability to being misled in general.  Therefore, ti is reassuring to see that respondents also relied predominantly on professional advisors or accountants before making purchase decisions (46% Malaysia, 45% Philippines, 46% Vietnam)

Levels of ownership and understanding regarding ICOs were much lower.

Policy Implications:  

The OECD findings are being used to identify additional regulatory engagement in the cryptoassets space beyond banning the use of the assets to effect transactions in the "real" economy.  Beyond the predictable proposals to pursue enhanced financial literacy initiatives, OECD experts are also now recommending that policymakers begin collecting more data regarding both consumer behavior and market developments in order to provide a foundation for additional rule-making not only to enhance consumer protection but also to ensure compliance with anti-money laundering standards.  

Other areas for potential increases in regulatory activity include:  online advertising and investor solicitations (particularly on social media) and requiring specific disclosures within whitepapers that increasingly function as offering circulars.

Conclusion

The OECD report may not (yet) have generated much attention, and the markets in question may not be large compared with the United States and Europe.  But quiet initiatives in small markets can serve as springboards for broader standards on the global stage.  Technical moves in tech-savvy jurisdictions like Malaysia particularly merit close attention.

As we noted back in February and have noted periodically since then, policymakers have been persistent in executing a year-long pivot towards expanding the regulatory perimeter regarding cryptoassets.  The trend began before the Libra stablecoin proposals.  Indeed, the OECD survey was undertaken BEFORE the summertime stablecoin proposal was floated.  We expect continued acceleration and expansion by policymakers throughout 2020.

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