APAC - Cryptoasset Regulatory Landscape
How Hong Kong, Singapore and Japan have taken different regulatory approaches to cryptoassets
The APAC region has among the highest adoption and growth rates of cryptoassets in the world. In 2023, data from the Global Cryptocurrency Adoption Index revealed that six out of the top ten countries by cryptoasset transaction volume were found in Asia. Institutional adoption accounted for 68.8 per cent of total transaction volume valued at $1 million or more, compared to 57.6 per cent in the previous year.
Regulators across the APAC region have taken varied and nuanced approaches toward regulating cryptoassets.
Hong Kong
Like in the US, there is no single regulatory body that governs cryptoassets, with several different regulators issuing their own guidelines. The Securities and Futures Commission (SFC) is responsible for the regulation of securities and futures markets in Hong Kong and cryptocurrencies that are defined as such come under the SFC’s scope. The SFC is also instrumental in applying AML compliance. The Hong Kong Monetary Authority (HKMA) ensures that financial institutions operate efficiently and transparently, and that virtual asset service providers (VASPs), a term used interchangeably with cryptoasset service providers, act properly with user funds. The Legislative Council of Hong Kong is the core body for approving and passing legislation related to financial markets. VASPs require a licence from the SFC to operate legally.
Hong Kong’s crypto regulations are centred around two key themes; risk mitigation and custody. All financial activities in Hong Kong need to comply with AML and CFT laws. Specifically, The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) is a core legislative piece that all VASPs must adhere to. In practice, it mandates due diligence, ongoing monitoring and specific requirements for banking services entering into business relationships with VASPs, including virtual asset transfers.
Unlike in the US, Hong Kong has specialist regulations for custodians, with The Provision of Custodial Services for Digital Assets in 2024. The terms include requirements for transparent disclosure of custodial arrangements for a user’s digital assets, and thorough recordkeeping and reconciliation of digital assets.
Singapore
Unlike in the US or Hong Kong, cryptoasset regulation is concentrated in the hands of one regulatory body in Singapore, with The Monetary Authority of Singapore (MAS) the main regulator of cryptoassets. Here, cryptoassets can be regulated as securities, e-money or digital payment tokens (DPTs) depending on their characteristics. MAS does not support retail use for cryptoassets but is currently in the process of expanding institutional adoption of stablecoins through several initiatives such as Project Ubin, which focuses on blockchain settlement for payment security transactions and is designed to streamline cross-border payments.
Singapore was an early mover in establishing cryptocurrency regulation after establishing the Payment Services Act (2019) (PSA), defining two types of crypto services in which providers must obtain a license; e-money and digital payment tokens. E-money is electronically-stored monetary value that keeps its value against any chosen fiat currency and is akin to a stablecoin. DPTs are digital representations of value that do not have a digital form and are typically maintained using blockchain technology; these include payment and utility tokens such as Bitcoin. PSA also enforces tight AML and CFT regulations.
Singapore is touted for its efficiency in passing crypto-related regulations. While democratic, the leading party has vast majority in parliament, allowing policies and laws to be passed quickly. This leaves Singapore at the cutting edge of crypto regulatory developments, ensuring clarity and less bureaucracy for firms, which is fostering a fertile environment for domestic and international crypto service providers.
Japan
Japan is arguably the crypto-friendliest country in the APAC region. After the infamous Mt. Gox crypto exchange collapse in 2014, Japan has seemingly learned its regulatory lesson and established a functional crypto regulatory framework. Its government regulators go a step further in its definitions of cryptoassets in comparison to its regional counterparts, recognising Bitcoin and other cryptocurrencies as a type of legal money. The Financial Services Agency (FSA) is responsible for regulating cryptocurrencies in Japan. Interestingly, Japan has established its own specialist regulatory entities for cryptocurrencies, showing the progressive and forward-thinking stance being taken toward cryptoassets here. The Japan Virtual Currency Exchange Association (JVCEA) and the Japan Security Token Offering Association (JSTOA) work in partnership with the FSA to regulate specific areas of the crypto world such as crypto exchange service providers and token offerings.
The Japanese Payment Services Act provides a regulatory framework for payment services and regards cryptoassets as a form of payment method. It mandates for cryptoasset exchange providers, which refers to service providers involved in the sale and exchange of cryptoassets, the intermediating and brokering for the trading of cryptoassets, the management of customer’s money in connection with these activities and the management of cryptoassets on behalf of another person, to register with the FSA.
In addition, Japan regulates cryptoassets under traditional AML and CFT measures. Interestingly, rules in Japan mandate that any transaction upward of 30 million JPY, whether in cryptocurrency or fiat, needs to be notified to the Ministry of Finance.
Although crypto regulations are progressing, globally, coherent and comprehensive frameworks among jurisdictions tailored specifically to cryptoassets are generally lacking. The perennial issue with cryptoassets lie in their distinctiveness from traditional asset classes, making it difficult to apply existing regulatory frameworks to them and develop new ones that ensure full coverage and protections for market participants. Consequently, this lack of regulatory standardisation is leading to confusion, hesitancy and mistrust, which is threatening to stifle innovation and slow institutional adoption. Although some regulatory frameworks, such as the EU’s Markets in Crypto-Assets, is a step in the right direction for crypto regulation, globally, more specialist crypto regulations with shared commonalities across borders will likely be needed to ensure smooth institutional adoption of cryptoassets going forward. APAC’s differing regulatory approaches to crypto is reflective of this fact.