Cambodia Permits Banks to Offer Services Involving Category 1 Crypto Assets

The National Bank of Cambodia (NBC) has taken a significant step by allowing commercial banks and payment institutions to offer services related to Category 1 crypto assets

Cambodia has authorized commercial banks and payment institutions to offer services related to Category 1 crypto assets, which include backed or stable cryptocurrencies, as part of an effort to regulate digital currencies and align with global financial trends. This marks the first time the National Bank of Cambodia (NBC) has permitted such operations, following a directive issued on December 26 and officially announced on December 27, the Phnom Penh Post reported. However, unbacked digital currencies, including Bitcoin, remain prohibited under the new framework.

The directive is part of Cambodia's effort to regulate digital currencies and align with global financial trends. Under the new rules, financial institutions must secure prior approval from the NBC before engaging in services involving crypto assets. Approved institutions will be allowed to exchange crypto for fiat, facilitate transfers of crypto assets between accounts, and offer custody services. However, these entities are explicitly prohibited from using clients’ crypto assets for their benefit.

Historically, Cambodia has adopted a cautious stance on cryptocurrencies due to concerns about potential risks, including fraud, money laundering, and other illicit activities. These concerns previously led to bans on crypto trading and transactions within the country.

In May, Chea Serey, the governor of the National Bank of Cambodia, shared optimism about the potential of digital currencies. She highlighted that such currencies could strengthen the Cambodian riel and reduce reliance on the U.S. dollar. This sentiment aligns with the NBC's measured approach to embracing stablecoins while maintaining a firm stance against speculative and unregulated cryptocurrencies.

Cambodia has permitted commercial banks and payment institutions to offer services involving Category 1 crypto assets, such as backed or stable cryptocurrencies. #Cambodia #Regulation

— Cryptonews.com (@cryptonews) December 27, 2024

Economic researcher Hong Vanak from the Royal Academy of Cambodia shared insights on the complexities of regulating cryptocurrencies. He noted that the decentralized nature of digital currencies complicates efforts to track, tax, and control these assets. According to Vanak, while cryptocurrencies may offer limited direct benefits to Cambodia’s economy, institutions providing crypto-related services could generate revenue through user fees.

In a related development earlier this month, Cambodia blocked access to 16 cryptocurrency exchange websites, including major platforms like Binance, Coinbase, and OKX. This move was part of a broader initiative to regulate the digital asset market and enforce compliance with local laws. The action, based on a directive signed by acting Telecommunications Regulator of Cambodia (TRC) chairman Srun Kimsann, aimed to block 102 domains, most of which were associated with online gambling. The targeted crypto exchange websites lacked the necessary licenses from the Securities and Exchange Regulator of Cambodia (SERC).

Although access to these websites has been restricted, mobile applications for the platforms remain operational. Currently, only two companies are licensed under SERC’s “FinTech Regulatory Sandbox” program. While these firms can trade digital assets, they are not authorized to exchange cryptocurrencies for Cambodian riel or other fiat currencies.

Despite stringent measures, Cambodia remains a leader in retail cryptocurrency usage per capita, according to analytics firm Chainalysis. Centralized exchanges account for approximately 70% of the country’s crypto transactions. However, Cambodia’s crypto activities have faced international scrutiny due to concerns about criminal misuse.

The United Nations Office on Drugs and Crime (UNODC) highlighted the use of cryptocurrencies by criminal organizations in Cambodia for activities such as money laundering and dark-web transactions. Furthermore, data from Chainalysis revealed that over $49 billion in cryptocurrency transactions between 2021 and mid-2024 were facilitated by Huione Guarantee, a marketplace associated with the Cambodian conglomerate Huione Group.