Legal and Tax Updates

Issue: No. 001P/25 – 06 January 2025

The regulations on cryptocurrency in Cambodia has undergone significant development, demonstrating the evolution of financial innovation and digital asset governance. Back in April 2014, the National Bank of Cambodia (“NBC”) had issued a press release denying Bitcoin and any similar digital currencies as a legitimate currency or payment instrument in Cambodian market. In late 2017, this stringent prohibition of cryptocurrency intensified after NBC issued notification to all banking and financial institutions in Cambodia on the prohibition of usage, circulation, purchase, sale, settlement and advertisement of unauthorized cryptocurrency and similar digital currencies in Cambodia, and in 2018, NBC further issued a joint statement with the Securities and Exchange Commission of Cambodia and the General-Commissariat of National Police prohibiting unauthorized cryptocurrency activities without obtaining license from competent authorities. This prohibition specifically targeted cryptocurrencies due to potential risks such as money laundering and financing of terrorism.

However, this stringent prohibition of cryptocurrency seems to be lessened provided that on 26 December 2024, NBC has issued a Prakas on Transaction Related to Cryptoassets. This regulation intends to manage the transactions and business activities related to Cryptoassets in conjunction with banking operations and services as provided under the Law on Banking and Financial Institutions of the Kingdom of Cambodia.

CRYPTOASSET SERVICE PROVIDERS (CASPs)

The Prakas permits Commercial Banks and Payment Service Institutions (PSIs) to have Cryptoasset exposures and/or, including other permitted legal entities, to provide cryptoasset service as Cryptoasset Service Providers (CASPs) under the supervision of NBC.

CRYPTOASSET SERVICES

The Prakas defines Cryptoasset services into three (03) as follows:

1. Exchange of Cryptoassets: refer to any service in exchanging Cryptoassets against fiat currencies (off-ramp transaction) or exchanging fiat currencies against Cryptoassets (on-ramp transaction) or exchanging one Cryptoassets to another.
2. Transfer of Cryptoassets: refer to the conduct of a transaction that moves a Cryptoasset from one address or account to another.
3. Safekeeping or Administration of Cryptoassets or other instruments related to Cryptoassets: refer to services such as (i) safeguard the customer’s Cryptoassets wallets; and/or (ii) manage the customers’ Cryptoassets wallet. CASPs could execute transactions or transfer from its platform on behalf of the customer, may have exclusive or independent control of the private key associated with Cryptoassets of its customers or exclusive or independent control of smart contracts that involve Cryptoassets of customers.

The Prakas prohibits CASPs from:

1. using customer’s cryptoasset for their own business purposes and facilitating lending and staking of customer’s cryptoasset;
2. acting or providing any service in a manner that will promote, support or encourage the use of cryptoassets as a means of payment for goods and services; and
3. advertising specific cryptoassets (but may only advertise their own services at CASPs).

CLASSIFICATION OF CRYPTOASSETS

The Prakas classifies Cryptoassets into two (02) groups namely Group 1 and Group 2.

1. Group 1 Cryptoassets: consists of digital representation of traditional financial instruments or the value of which refers to traditional assets or to a pool of them known as reference assets. This Group 1 Cryptoassets further categorized into two (02) subclasses as follows:

• Group 1a subclass: are digital representation of tokenized traditional assets using Distributed Ledger Technology (DLT) or similar technology to record ownership (For example, Non-Fungible Tokens or NFTs). These traditional assets include corporate bonds, loans, deposits or equities, derivatives, commodities and cash in custody.
• Group 1b subclass: are stablecoins with an effective stabilization mechanism to traditional assets or a pool of them that aim to maintain a stable value of the reserve assets.

2. Group 2 Cryptoassets: are Cryptoassets not falling under Group 1 including unbacked Cryptoassets that are neither tokenized traditional assets nor stablecoins (For example, Bitcoin and Ether).

The Prakas further provides conditions and requirements for Cryptoassets to be recognized whether as Group 1a or Group 1b including requirements for these subclasses of Group 1 Cryptoassets to strictly comply with.

COMMERCIAL BANKS’ CRYPTOASSET EXPOSURES

For Commercial Banks intending to have Cryptoasset exposures shall have the Board of Directors establish, approve and regularly review risk management policies, procedures, processes and system for the management of risk related to the operation of Cryptoassets and to ensure effective implementation of identification, monitoring, management and address of risks related to such operation under direct responsibility of senior management at executive level.

Commercial Banks may carry out Cryptoassets activities or services where:

1. For Their Own Account: shall obtain prior approval from NBC (requirements are stipulated in Article 13 of this Prakas).
2. For Their Customers: shall apply for prior authorization from NBC (to be stipulated in a separate Prakas).

Commercial Banks intending to carry out Cryptoassets activities or services “for their own account” are not allowed to:

1. issue Cryptoasset; and
2. carry out, directly or indirectly, any Cryptoasset exposure with Group 2 Cryptoasset including any transaction on organized derivative or future markets where an underlying asset is a Group 2.

Commercial Banks shall implement existing prudential treatment on exposure to Group 1 based on the general principle “same activities, same risks, same regulations” of the traditional assets for both banking or trading books. Commercial banks shall maintain Group 1a exposures (before risk-weighted) below 5% and Group 1b (before risk-weighted) exposures below 3% of their Common Equity Tier 1 Capital (CET 1 Capital). Additional capital charged may be imposed by NBC in the case that the risks of specific bank are not insufficiently captured under the minimum capital requirements. In addition to the existing reporting requirements for Cryptoassets exposures for Commercial Banks, they shall report quarterly on the nature and value of the Cryptoasset exposures as attached in the Prakas.

PENALTY

Commercial Banks, Payment Service Institutions (PSIs) and licensed CASPs who fail to comply with this Prakas shall be penalized according to Article 52 of the Law on Banking and Financial Institutions and with additional penalties as provided in this Prakas.This Prakas is accessible with the following links:

For Khmer language: 20241226_PrakasonCryptoassetactivities-KH.pdf

For English language (unofficial translation): 20241226_PrakasonCryptoassetactivities-Eng.pdf

We hope that the above legal update is helpful for your investment and helps you to invest more confidently.

DISCLAIMER

The article is merely for general information purposes. It does not constitute a legal advice on the subject matter. If you have any questions or need any assistance, please feel free to contact us:

	NOEUM Sokvichhai, Partner, Managing Director sokvichhai.noeum@sithisak-lawoffice.com +855 12 826 785	Mr. Sokvichhai has more than 8 years of experiences in labour, corporate, commercial and investment advisory in Cambodia. He actively advises and assists various businesses in commercial, tax, and labour registration, business licensing, products registration & distribution, business recapitalization & restructuring, and mergers & acquisitions transactions. He also has experience in advising collective investment fund and trust business, initial public offering, bond issuance, investment incentives & qualified investment project, and labour & employment related issues. Sokvichhai also assists major business in preparing various complex commercial agreements.
	TONG Lin, Senior Legal Advisor, Head of Banking, Finance and Capital Markets tong.lin@sithisak-lawoffice.com +855 98 888 293	With over five years of experience in the legal field, Lin legal practices concentrate on corporate, commercial, banking, finance and capital markets-related matters. Currently, Lin actively provides legal services to both local and international financial institutions including legal advice, preparation of complex financing documents, security documents and other legal documents and matters. Lin also actively advises to several growing SMEs and renown large enterprises regarding their proposed equity and debt securities, public funds issuance under collective investment scheme, trust and project financing arrangements.

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