The Role of the SEC in the Digital Age
The evolution of finance has caused changes in the development of technology and the desire to raise funds for the new entrepreneurial generation of startups. This has brought about initial coin offerings, or ICOs, a new way of raising capital, which combines crowdfunding and cryptocurrency using blockchain technology.
The mechanism starts from the issuer writing a white paper — similar to a prospectus — that is proposed to investors. The contract will give tokens or digital coins as remuneration. Each token can be set to have various characteristics, such as payment of goods and services from the issuer of the token, using it to pay dividends, or tying it to other assets such as gold or property.
The contract made is a smart contract in the blockchain network. The issuer releases the backing source code so that all the investors can see the format of the contract that has been prepared.
The ease and speed of raising capital is the phenomenon making ICOs grow by leaps and bounds. The trend has spread to many countries, unavoidably including Thailand. This inevitably impacts the original players and the risks that may arise.
Mrs Praoporn Senanarong, assistant secretary-general of the Securities Exchange Commission offered some perspectives on the evolution of finance, investment and the role of the SEC.
“At present, technology has become involved in every human activity. Platforms link up various data and enable access to all people entitled to the data. A network can be found easily without much money. Investors, therefore, have more alternatives to obtain data from various sources and more aid in their investment decisions.”
Originally, transactions, investment or decisions had to pass an intermediary. However, at present, blockchain technology can create credible network systems. There are artificial intelligence and automation to overcome the practical limitations of humans. This has reduced the role of intermediaries. It is necessary to adapt by making data that helps investors work and make decisions more easily.
“We must be aware of changes that are disruptive. The Thai market is small, unlike China, which can close the country and move forward with its domestic economy. Therefore, when something comes in from outside, it impacts the country quickly and hugely. Besides being a regulator, the SEC must be like a radar to see how the world is changing. We should not use the old criteria for something new. For instance, in the past, the SEC regulated through intermediaries such as brokers, dealers or the Stock Exchange. However, now there is the blockchain system, which does not require an intermediary. We don’t know whom to regulate, and this is a challenge for the SEC.”
As for ICOs, the SEC has previously been open to the opinions of stakeholders and prepared the Enactment on Digital Securities 2018, which became effective on May 14.
This law regulates raising capital through digital tokens or ICOs, as well as businesses in other digital securities, such as trading exchanges, agents and traders in digital securities. It is meant to protect investors from being deceived by the dishonest and prevent money laundering and using digital securities to make illegal transactions. The law provides clarity on regulations and issuing criteria, and on waivers on digital securities that do not need regulation such as games and toys.
“Whoever wants to make an ICO must obtain permission from the SEC first, and the white paper must be approved to make an offer through an ICO portal. We are like a financial advisor screening ICOs making an offer on a platform, like the FA of a SET-listed company which wishes to make an IPO.”
However, the SEC understands the changes that have arisen and is trying to adapt and be flexible to provide the proper mix of regulation — using modern tools for regulation — that is appropriate for the situation. If an entrepreneur has an idea that fails to meet the criteria, considerations will be made to relax the requirements. The issuer can test the project in a sandbox and use technology to address the problems, getting the full benefit from innovations. Supporters can create a startup with potential.
“When everything is opened wider, the SEC must adapt. Some people may think that a permit from the SEC does not guarantee that something is the best. They might like to choose for themselves on the Internet. They would like to decide from the information they have received, rather than caring about a permit. In the future of data, various networks will join together and process a better answer in real time. The permit system may have to change because of this opening.”
The principal goal of the SEC is to lay the foundations for an appropriate ecosystem in Thai capital markets that can meet the needs of the country and public in a situation of rapid change. It can be an alternative source of capital for businesses with potential and with the opportunity to grow. Startups are a target for us to support. Even though they are new businesses with no track record, they can still raise capital.
Praoporn also offered her opinion on the phenomenon of changes in cryptocurrencies that in the future could replace common currencies to some degree, in line with global trends to reduce the carrying of cash. The degree of replacement depended on acceptance of the cryptocurrency, whether it was fully-featured and credible, and whether there were systems to prevent money laundering, or using digital money in corrupt ways.
The SEC assistant secretary-general said in closing: “Everything has a risk. The SEC is open to listen, test and learn about business sectors. We cannot make everything 100% perfect in regulating from the beginning. So rapid changes mean we cannot wait for everything to be 100% perfect either. If we do wait for that day, innovation may be already out of date. We must exchange knowledge to reach our goal together.”
Mrs Praoporn Senanarong, assistant secretary-general of the Securities Exchange Commission