Creating a comprehensive crypto-assets legal framework would boost local FinTech development – Lawyer

Creating a comprehensive but flexible local legal framework for crypto-assets would open a new door to the development of the local FinTech sector, a legal expert told Macau News Agency.

Corporate law firm Riquito Advogados lawyers Daniel Senna Fernandes and João Nuno Riquito recently issued a legal note in which they indicate that, as Macau SAR authorities prepare to revise the local Macau Financial System Act in order to modernise and diversify the local financial sector, they would face the issue of whether to accept and regulate crypto-assets as part of this system.

Crypto-assets are broadly defined as private digital assets that use cryptography or blockchain technology and are designed to work as a medium of exchange, including cryptocurrencies and non-currency assets such as non-fungible tokens (NFTs), a digital asset that represents real-world objects like art, music, in-game items and videos.

Not many jurisdictions have implemented regulations on crypto-assets yet, but according to Fernandes the world is moving towards a legislative adaptation of the regulations that already exist.

As an example, the lawyer – who has conducted research on digital law – cited the legislative proposal on markets in crypto-assets advanced by the European Union in September 2020 which would regulate crypto-assets that fall outside the scope of the current financial market regulation.

Although recently admitting they were considering legal amendments to allow for a future centralised digital RMB to be used in Macau, concerning crypto-assets the Macau Monetary Authority (AMCM) has only issued several notices warning residents of the risks of investing in such assets.

The AMCM previously stated to Macau News Agency that the trading of virtual currencies still implies considerable risks, including money laundering and terrorism financing.

A non-fungible token (NFT) is a unit of data stored on a digital ledger, called a blockchain, that certifies any digital file to be unique

According to Fernandes, the AMCM’s resistance and wariness concerning crypto-assets was understandable some years ago when the technology first appeared.

“People didn’t know exactly what Bitcoin was, they also heard a lot about money laundering via Bitcoin or people were scammed. There was also the idea when the technology first appeared that transactions were completely untraceable, which we know now is not the case because we can backtrack the transactions, albeit through an expensive process,” Fernandes added.

For the lawyer, the repeated notices have made people wary of engaging with digital assets under the currently regulatory framework, where investing is not completely prohibited but not advised.

“I think Macau has the infrastructure and the resources to allow for this market to advance […] The moment crypto-assets are legislated in Macau they should not be limited to certain types, for example just for contracts, NFTs or currencies,” Fernandes told MNA.

“It is all the same technology and for me, in order to allow the market to diversify and create the conditions for more investment in Macau, it would make more sense to create a large regulatory umbrella that could cover the whole crypto-assets universe, while specifically defining what is a crypto-asset and which crypto-asset sub-types can exist.” 

At the same time, such amendments would have to be coupled with regulations that would assure investors and companies about the safety and transparency of the market.

“I believe companies would be interested [in this sector], and if there is legislation on the matter one day interested investors would be cautious. But for individuals to put down their own capital on it they would need assurances,” lawyer Senna Fernandes told MNA.

“The EU proposal for example underlines that regulations have to guarantee that the system is safe and trustworthy and that all parties involved in it have all information available on each crypto-asset type.”

Developing this market would also be in line with announcing government intentions to move on with the development of the local financial sector and FinTech resources, as part of diversification efforts to move away from the heavy reliance of the local economy on the gaming industry.

As for the human resources needed to develop a crypto-asset industry or FinTech, the lawyer commented there would probably be a need to resort to the large pool of qualified personnel in Mainland China or other countries.

“I think we also have qualified residents who are currently not in Macau because there is no market. Maybe they are in Hong Kong, where there are growth prospects and growing infrastructures that allow them to have more ambition.”

“However, Macau has infinite red tape for everything, from hiring foreign talent to digital banking. Local financial regulations are very old, some are 20 years old. But such regulations would not need to be completely overhauled, just some amendments would be needed,” he noted.

So far, only two virtual banks operate in the region: Ant Bank Macau, launched last year, and the Macau Development Bank. The Financial System Act, passed in the 1990s, does not specifically set out rules for virtual banking business, but lenders are allowed to conduct online business.

Ant Bank Macau, one of only two licensed online banks in Macau

The lawyer noted that, in order for Macau Pass to operate mobile payments in Macau, a new license basically had to be created and some adaptations had to be made. However, at the same time, such amendments resulted in a very specific regulation, the legal advisor saying the law should allow more ‘leeway’ for other projects.

“Let’s consider the digital RMB for example. I would be a bit surprised if future legislation specifically established that only this currency is accepted […] Accepting the digital RMB would be a great progress and would greatly impact the digital payment market.”

Chief Executive Ho Iat Seng remarked in April that the Macau Government is looking at amending the SAR’s financial laws to allow for the introduction of China’s Digital RMB in the future, without providing a timetable. The People’s Bank of China (PBOC) has carried out tests for the new currency in some mainland cities and in Hong Kong.