Regulation
Indonesia to Debut National Crypto Exchange in Coming Weeks
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The Indonesian government is planning to deliver on its highly awaited cryptocurrency exchange endeavor later this month, according to the latest reports from the Southeast Asian country. The head of the Commodity Futures Trading Regulatory Agency (CoFTRA), Didid Noordiatmoko, shared in a Friday update that the government is winding down the process to appoint companies that will be involved in the project. The commodities regulator also communicated that upon launch, the national crypto trading platform would exist as the sole exchange supporting transactions involving cryptocurrencies.
Change in oversight body from the commodities to the securities authority
Indonesia has been working towards officially debuting the national bourse since the tail end of last year when the House of Representatives adopted regulatory reforms. The July 14 report noted that the regulatory body has finalized drafting requirements which include Know Your Customer (KYC) guidelines. The agency already approved the integrated application system through which the exchange clearing and depository services would be offered.
CoFTRA chief Didid said that Trade Minister Zulkifli Hasan had been notified of the developments. The agency will proceed to launch the exchange allowing for the onboarding of licensed traders if the Minister fails to object. The Ministry of Trade initially planned to institute the venture as part of the country's crypto regulation overhaul in December before adjusting the timeline to June 2023.
Trade Minister Hasan said at the time that five out of the more than two dozen registered exchanges operating in the country would be part of the state-backed exchange. Hasan also justified the delays by noting that the government didn’t want to rush into setting up the project as a vast population was not knowledgeable about digital assets. Indonesia's government seeks to shift the regulatory authority from the current commodities-focused agency to the Financial Services Authority (Otoritas Jasa Keuangan) in the next two years.
This week, the OJK appointed Hasan Fawzi, whose experiences include a director role at Indonesia Bond Pricing Agency as the Head of Fintech and Crypto Oversight. Fawzi will lead the supervisory board for fintech, digital financial assets, and crypto assets with the help of Lodewik Paulus Agusman, whose appointment to the OJK Board of Commissioners was also approved on Monday. Indonesia has equally been making strides in its pursuit of a central bank digital currency, Rupiah, whose white paper was released last year.
Russia's Case: Prioritizing crypto regulations ahead of national bourse
The latest development from Asia comes a month since Russian lawmakers walked away from similar plans to create a new national cryptocurrency exchange. Late May reports indicated the government intended to open a unified crypto exchange that would operate as part of the Moscow Exchange. In June, Russia suspended the plans that were introduced last November in favor of regulating the existing crypto trading platforms, per a statement from State Duma official Anatoly Aksakov.
The plan, set forth by the head of Duma’s Committee on Financial Market, saw opposition from the local Ministry of Finance and other authorities who deemed the idea impractical and called for its abandonment. Russia, like Indonesia, has nonetheless been working on a regulatory infrastructure for digital assets to be implemented for proper oversight of the country’s crypto trading platforms.
The government wants to regulate and promote the crypto space while simultaneously managing the risk of sanctions. Russia is also exploring a bill on a CBDC as part of amendments to the current crypto legislation. Unlike the forthcoming regulatory frameworks for cryptocurrency exchanges which will be overseen by the Russian central bank, the country's CBDC project is yet to be fully defined. Russia and Indonesia aren't the only governments considering a unified avenue for trading digital assets.
Tel Aviv Stock Exchange looks to allow non-bank members to offer clients crypto trading services
Last October, the Tel Aviv Stock Exchange (TASE) presented a five-year plan for accelerating growth of its digital assets and crypto markets. TASE outlined that it would support various innovative technologies, integrate with existing infrastructure, and possibly support a basket of crypto services and products under the strategic plan. Among other reasons, the operator of Israel's only public equity trading platform said embracing blockchain technology would improve the country's status in the international community and grow its revenue.
In February, the stock exchange shared a discussion draft seeking public comments on allowing non-banking members (NBMs) to offer crypto trading services to their customers before the same can be put before the exchange’s board of directors. By opening up its traditional trading floor for crypto, the exchange aims to satisfy a growing demand for crypto while having the associated risks in mind.
How would it work
The change in regulations TASE suggests would permit non-banking financial institutions to enable their clients to conduct crypto transactions via the public equity trading platform. Customers could deposit fiat to invest in crypto and also withdraw the profits generated from it, a deviation from the current status quo that does not sanction public deposits to such institutions. Further, NBMs would need to engage with two licensed providers for different functions – one for crypto trading services and the other for custodial services.
Customers seeking to buy crypto would first submit funds to the non-bank entity, which will subsequently deposit them into an omnibus account the entity has with a trading services provider. Once the trading order is received, the transaction will be executed utilizing the deposited funds within the omnibus account and recorded within the customer's account with the NBM. If the customer wants to issue a sell order for their crypto holdings, the trading services provider will sell their tokens and deposit the resulting consideration (in fiat) into the omnibus account. The consideration will subsequently be transferred to the customer's account held with the NBM.
The need to protect consumers necessitates regulation
Last November, Chief Economist of the Israeli Ministry of Finance Shira Greenberg published a 109-page report offering recommendations on keeping tabs on the domestic digital assets market. The comprehensive ‘Regulation of the Digital Assets Sector – Roadmap to a Policy' report considered findings from a study by local financial authorities, i.e., the Bank of Israel, the Capital Market, Insurance and Savings Authority, and the national securities regulator, the Israel Securities Authority.
The report presented that the current regulatory approach in Israel and some other nations regulates financial services and activities in crypto, similar to how they would for non-digital assets. It asserted that, instead, the unique and unconventional features of the industry must be taken into account when formulating such regulations.
TASE bets on proper regulations in line with international standards to attract foreign investments into the local market. This would simultaneously provide an opportunity for citizens to invest in supervised institutions locally, promoting innovation and competition while addressing the inherent risks in this sector, thereby advancing the capital market in the country. Earlier this month, Israeli legislators held a preliminary reading for a new bill seeking to exempt foreigners from capital gains taxes on profit derived from crypto activities. The bill represents an amendment to the country's Income Tax Ordinance and aligns with the administration’s efforts to appeal to foreign investors.
