In a significant move, the National Bank of Cambodia (NBC) issued a Prakas (directive) on Friday to regulate cryptoasset-related activities within the country’s financial system. This marks a major milestone in Cambodia’s journey toward adopting digital finance while ensuring regulatory oversight and financial stability.
The directive, based on the Law on Banking and Financial Institutions, aims to promote financial stability while addressing risks and challenges associated with cryptoassets.
Key Provisions of the Prakas
The Prakas outlines a framework to govern transactions and businesses related to Group 1 cryptoassets, as defined under Cambodian law. However, it prohibits commercial banks from holding Group 2 cryptoassets, such as unbacked cryptocurrencies and high-risk assets like Bitcoin.
NBC clarified that commercial banks, payment service providers under its jurisdiction, and other legal entities can engage in transactions involving cryptoassets without prior approval or licenses from NBC, provided they comply with the regulations.
The directive applies to all commercial banks, payment service institutions, and entities intending to operate as Cryptoasset Service Providers (CASPs). CASPs, defined as entities offering services such as exchanging, transferring, or safekeeping cryptoassets, must meet specific authorization and licensing criteria detailed in separate regulations.
Classification of Cryptoassets
The Prakas categorizes cryptoassets into two groups:
- Group 1: Tokenized traditional assets and stablecoins tied to real assets or pools of assets.
- Group 1a: Tokenized assets like bonds or equities, recorded using distributed ledger technology (DLT).
- Group 1b: Stablecoins with mechanisms to maintain value relative to reserve assets, excluding algorithm-based stablecoins.
- Group 2: All other cryptoassets, including unbacked cryptocurrencies and assets not tied to real-world reserves.
Each group is subject to distinct regulatory criteria to ensure stability and compliance.
Governance and Risk Management
The Prakas mandates strong governance and risk management systems for commercial banks engaged in cryptoasset-related activities. Boards of directors must approve policies, ensure oversight, and monitor compliance with risk frameworks. Risk policies must address a wide range of risks, including:
- Credit, market, and operational risks
- Cybersecurity and ICT risks
- Legal and reputational risks
- Compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) standards
Senior management is tasked with implementing these policies effectively.
Approval Requirements for Commercial Banks
Banks seeking to engage in cryptoasset activities must:
- Obtain prior approval from NBC
- Avoid issuing their own cryptoassets
- Refrain from transactions involving Group 2 cryptoassets
Exposure limits for Group 1 assets are capped at:
- Group 1a: Up to 5% of Common Equity Tier 1 Capital (CET1)
- Group 1b: Up to 3% of CET1
Applications for approval must include board decisions, financial impact assessments, legal due diligence, and three-year business plans. NBC has a 60-working-day timeframe to respond.
Regulations for CASPs
Entities offering cryptoasset services must obtain a license from NBC and adhere to governance and risk management standards equivalent to those imposed on commercial banks. Restrictions include:
- Prohibition on using customer cryptoassets for business purposes
- Bans on promoting cryptoassets as payment methods
- Restrictions on advertising specific cryptoassets, though they can promote their services
Sanctions and Penalties
The Prakas imposes stringent penalties for non-compliance, including:
- Fines of up to 500 million Riels per prohibited transaction
- Daily fines for delayed corrective actions or reporting failures
- Additional penalties for breaches of risk management or operational guidelines
These measures reflect NBC’s commitment to enforcing the regulations and deterring violations.
A Balanced Approach
The Prakas underscores NBC’s cautious yet forward-looking approach to integrating cryptoassets into Cambodia’s financial system. By establishing clear guidelines, the directive seeks to foster innovation in digital finance while safeguarding financial stability.
Source: Khmer Times
