Asia's crypto regulatory landscape changed in 2023 with Hong Kong at the lead

As the year comes to a close, the regulatory landscape for the cryptocurrency industry in Asia has seen significant developments with growing momentum. Hong Kong, in particular, has been at the forefront of efforts to establish itself as a hub for crypto and Web3 innovation. 

The following is a roundup of key crypto developments in Asia this year.

Hong Kong — a Web3 hub in the making

In June, Hong Kong officially started its crypto licensing regime for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services. The regulator has granted such licenses to HashKey and OSL.

Hong Kong’s Securities and Futures Commission in October updated its guidance on virtual asset-related activities for intermediaries, broadening the investor range for crypto ETF engagement. The regulator also published two circulars in November aimed at overseeing the city’s digital asset tokenization activities and said it was open for applications for spot crypto ETFs in December.

Christopher Hui, Secretary for Hong Kong’s Financial Services and the Treasury, reaffirmed the government's commitment to Web3 growth at the Hong Kong Fintech Week in November. Despite recent crackdowns on the JPEX crypto exchange, Hui said that regulatory actions won't deter their determination.

“We have been asked many times whether JPEX will affect our determination to grow the web3 market,” Hui said. “The answer is a clear no.”

“The regulatory regime in Hong Kong is a competitive advantage for setting up and running a compliant digital asset business,” Donald Day, chief operating officer of Hong Kong-based crypto platform VDX, told The Block. “While these jurisdictions had to make a 180-degree turn and tighten their regulatory frameworks, the framework in Hong Kong has been stable, reliable and has now proven itself.”

Adrian Wang, CEO of Asia-based digital asset management firm Metalpha, said that crypto investors were surprised by “just how fast Hong Kong is playing catchup to Singapore’s well-balanced regulatory regime.” 

“It is true that Singapore had a headstart in designing and testing policies that are suitable for digital assets. For example, DBS conducted fixed-income trade on JP Morgan’s Onyx network as early as 2022,” Wang said. “However, since the Hong Kong Fintech Week last year, SFC gradually rolled out its VASP license regime, hoping to attract high-quality crypto firms to set up business in Hong Kong.”

Singapore beckons

While Hong Kong continues to show its crypto-friendliness to industry players, Singapore still attracted many global companies in the crypto and web3 space to set up their bases in the country. Over the last year, however, the city-state has seen several crises involving crypto players, including the failures of Three Arrows Capital, Vauld and Hodlnaut.

The Monetary Authority of Singapore appears to remain committed to regulating crypto firms, though — after recently granting licenses to crypto firms including Coinbase and Circle. Gemini also said in June that it was gearing up for growth in Asia with plans to increase its headcount in Singapore to over 100 employees.

Grab, a ride-hailing super-app popular in Southeast Asia, has also started to incorporate web3 services with NFT wallets. In June, it signed on to be a part of a pilot study with the MAS surrounding the use of three digital assets including central bank digital currencies, tokenized bank deposits and stablecoins. 

Japan, South Korea and Taiwan 

While Hong Kong and Singapore emerged as the most high-profile crypto hubs in Asia, other jurisdictions such as Japan, South Korean and Taiwan have also formulated relevant regulations and guidelines for the nascent industry.

Japan, for example, revised the Payment Services Act in June to establish stablecoin-related regulations. The Japanese government reportedly sought to ensure protection for stablecoin investors after TerraUSD’s implosion. The positive outlook has promoted Circle, the issuer of the USDC stablecoin, to partner with Japanese securities and banking giant SBI Holdings to expand its presence in Japan.

Meanwhile, Busan, the second-largest city in South Korea, has attracted two companies to apply to operate a digital assets exchange dubbed Busan Digital Asset Exchange, in the hope of launching an official business in the first half of next year, the city government announced in November.

South Korea’s National Pension Service, the world’s third-largest pension fund by assets, also seems bullish on the crypto industry. It purchased Coinbase shares worth $19.9 million in the third quarter of this year, according to its holdings report.

Taiwan is also in the process of formulating more regulations for the crypto industry. In October, Taiwan officially proposed a draft crypto act for first reading that would require all crypto platforms operating in Taiwan to apply for a permit. If they failed to do so, regulators could order them to cease operations.

While Taiwan’s financial regulator in September released guidelines for the crypto sector to form its own self-supervisory rules through a potential industry association, such measures lack legal enforceability, Yung-Chang Chiang, a Taiwanese lawmaker, told The Block. 

Previously, Taiwan has required crypto trading platforms to comply with anti-money laundering laws since its regulator introduced anti-money laundering rules in July 2021.