Currently, only two companies in Cambodia have received authorization under SERC’s FinTech Regulatory Sandbox program. These licensed entities can trade digital assets but face restrictions on exchanges involving the country’s legal tender – the riel and US dollars – or other fiat currencies. So it is not a big surprise to see Cambodian regulators acting to penalize crypto exchanges that are operating at best in a gray area, and at worst, illegally.
But this is about more than slapping unlicensed exchanges on the wrist. The crackdown on digital assets in Cambodia comes as the country’s leadership looks to increasingly target illicit activity involving digital assets. The Cambodian government has good reason to do so: Crypto-related crime in the country has already resulted in sanctions being imposed by the United States. In September, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it would sanction Cambodian businessman Ly Yong Phat (Ly), his conglomerate L.Y.P. Group Co., LTD (L.Y.P. Group), and O‑Smach Resort “for their role in serious human rights abuse related to the treatment of trafficked workers subjected to forced labor in online scam centers.” Many of the scams involved investing in virtual currency.
Keep in mind that it was not long ago that Cambodia was still on the Financial Action Task Force’s (FATF) gray list, indicating a weak anti-money laundering (AML)/counterterrorism financing (CFT) regime. Cambodia was placed on the list in early 2019 and finally exited four years later after FATF deemed it had made enough improvements. The last thing Phnom Penh wants is to be put on that list again as it would adversely affect foreign investment and the broader fintech sector. Gray-listed countries are subject to burdensome additional compliance requirements.
Finally, while Cambodia is eager to further digitize financial services, it is not looking to cryptocurrency to play a role in payments. Rather, it is focused on boosting adoption of a state-backed retail digital currency with Project Bakong, which surpassed 10 million accounts (60% of Cambodia’s population) in December 2023. The National Bank of Cambodia (NBC) jointly developed Bakong with the Japanese blockchain technology startup Soramitsu, launching it in October 2020. The Cambodian government launched Project Bakong because it believed a retail digital currency could accomplish three key policy objectives: boost financial inclusion—at the time of Bakong’s launch about 75% of the population was unbanked—improve digital payments infrastructure and eventually reduce the use of U.S. dollars in everyday transactions.
That said, cryptocurrency could still develop as an asset class in Cambodia. Exchanges will have to be properly licensed first, though.