Stablecoin issuer / redeemer in Bhutan

Absence of Specific Licensing: There is no specific license for stablecoin issuance in Bhutan.

Existing Framework Analogy: If a stablecoin issuer were somehow deemed a financial institution or operating an e-money scheme under existing laws, they would then be subject to the general prudential regulations and capital requirements applicable to such entities, as prescribed by the RMA. However, this is a hypothetical scenario as such licensing for a stablecoin issuer does not currently exist.

Existing Licensing Implications: If a stablecoin issuance activity were to be classified as banking business, payment service provision, or another regulated financial activity, the issuer would need to obtain the relevant licenses from the RMA under the Financial Institutions Act of Bhutan 1992 or the Payment and Settlement Systems Act of Bhutan 2015. However, these acts are generally geared towards traditional financial services.

Absence of Specific Rules: Since there's no specific framework for stablecoins, there are no dedicated reserve requirements.

No Specific Statutory Rights: In the absence of a stablecoin-specific framework, there are no specific statutory redemption rights for stablecoin holders in Bhutan.

Contractual Basis: Redemption rights would primarily be governed by the terms and conditions or the whitepaper of the stablecoin issuer (a private contract). Any disputes would likely fall under general contract law.

No Specific Rules: Bhutan does not have any specific regulations addressing algorithmic stablecoins. Given their inherent volatility and risks, they would likely be viewed with even greater caution by the RMA, potentially being classified as unregulated "virtual currencies" rather than having any clear regulatory pathway.

RMA's CBDC Pilot with Ripple: In September 2021, the Royal Monetary Authority of Bhutan announced a partnership with Ripple to pilot a CBDC using Ripple's CBDC Private Ledger, which is based on the XRP Ledger technology. The pilot aimed to explore the use of a CBDC for cross-border and wholesale payments, as well as enabling financial inclusion in Bhutan.

Implication for Stablecoins: The development of a national CBDC could impact the need for or the regulatory stance towards private stablecoins. A successful CBDC might reduce the market demand for private stablecoins by offering a central bank-backed digital equivalent of fiat currency. Conversely, it could also pave the way for a more general understanding and regulatory approach to digital currencies, potentially influencing future stablecoin policies. The RMA's focus is on a national, centrally controlled digital currency, rather than privately issued ones.

Legislation: Payment and Settlement Systems Act of Bhutan 2015 (and its implementing regulations).

Analysis: This Act primarily governs traditional payment systems, electronic fund transfers, and payment service providers. It defines "electronic money" as monetary value represented by a claim on the issuer which is stored electronically, issued on receipt of funds for the purpose of making payment transactions, and accepted by a natural or legal person other than the electronic money issuer.

Likelihood: It is unlikely that most stablecoins, particularly those not issued by licensed financial institutions or those operating outside a regulated "closed-loop" system, would automatically qualify as e-money under this Act. The Act's focus is on fiat-denominated value within licensed financial ecosystems.

For the Public and Licensed Financial Institutions: The Royal Monetary Authority of Bhutan (RMA) has adopted a cautious and prohibitive stance. There is no legal framework to permit or regulate private crypto trading, exchanges, or virtual asset service providers (VASPs) for the general public. Licensed financial institutions (banks, non-bank financial institutions) are generally prohibited from dealing with virtual assets, processing transactions related to them, or providing services to crypto businesses. This effectively acts as a de facto ban on public participation in the unregulated crypto market.

RMA Circulars and Public Notices: The RMA has issued warnings and advisories to the public and financial institutions concerning the risks of cryptocurrencies, highlighting their unregulated nature, volatility, and potential for fraud and money laundering. These directives effectively prohibit licensed financial institutions from facilitating crypto-related transactions. Specific circular numbers and dates are often for internal circulation or specific institutions, but the general public advisories are consistent.

Crypto Trading: For the general public in Bhutan, crypto trading is heavily restricted and effectively prohibited through the formal financial system. The RMA's stance discourages and prevents licensed financial institutions from processing transactions related to virtual assets. This means individuals cannot easily buy or sell cryptocurrencies via traditional banking channels within Bhutan.

Crypto Exchanges: There are no licensed or regulated cryptocurrency exchanges operating for the public within Bhutan. The regulatory environment does not support their establishment or operation for public access. Any involvement would be considered operating outside the formal financial system and could carry significant risks for participants.

Anti-Money Laundering and Countering Financing of Terrorism Act of Bhutan (AMLCFT Act) 2018: This is the cornerstone legislation for AML/CFT in Bhutan. While it may not explicitly name "cryptocurrency" or "virtual assets" in all its provisions, its broad definitions and regulatory scope are intended to cover evolving financial instruments and services that fall under the FATF's purview.

AML/CFT Guidelines for Financial Institutions (2018): Issued by the RMA, these guidelines provide detailed instructions and requirements for financial institutions to implement the provisions of the AML/CFT Act. While not specifically named for VASPs, these guidelines generally apply to any entity falling under the scope of "financial institutions" or "reporting entities" for AML/CFT purposes.

Identification and Verification:

Beneficial Ownership: Identifying and verifying the natural persons who ultimately own or control the customer, or the natural person on whose behalf a transaction is being conducted.

Obligation to Report: Any transaction (regardless of amount) where there are reasonable grounds to suspect that it may be linked to money laundering, terrorist financing, or other criminal activity must be reported.

No Tipping-Off: Reporting entities and their employees are prohibited from disclosing to the customer or any third party that an STR has been or will be filed.

Duration: Records must generally be kept for a minimum of five (5) years after the business relationship has ended or after the date of the transaction.

FATF "Travel Rule": The FATF's Interpretive Note 15 (Recommendation 16) requires VASPs to obtain and transmit originator and beneficiary information for virtual asset transfers. While not explicitly codified in Bhutanese law for VASPs, the RMA would likely expect VASPs to comply with this as part of their broader AML/CFT obligations, consistent with international standards.

Risk-Based Approach: Applying CDD measures based on the risk associated with the customer, product, service, or jurisdiction. This means:

Evidence fact bt.custody.rma-issued-a-formal-communication not found (may have been renamed).

Entities providing virtual asset services in Bhutan, including custody, are subject to a specific Digital Asset Trading and Custody Services License regime, not merely AML/CFT registration. This licensing framework inherently includes AML/CFT obligations such as customer due diligence, transaction monitoring, and suspicious transaction reporting, but the primary regulatory obligation is the specialized license, not just AML/CFT requirements alone.

Cryptocurrencies are not explicitly illegal in Bhutan, and while they are not recognized as legal tender or regulated financial assets by the Royal Monetary Authority, certain digital assets are now formally recognized and regulated under the Gelephu Mindfulness City (GMC) special administrative region, which issues licenses for digital asset trading and custody services.

No Crypto-Specific Reporting: Currently, there are no specific reporting requirements for individuals or businesses regarding their cryptocurrency holdings or transactions in Bhutan.