Year Of Dragon Accelerates Hong Kong’s Crypto Regulatory Development

Fireworks light up over Victoria Harbour on the second day of the Lunar New Year of the Dragon in … [+] Hong Kong on February 11, 2024. (Photo by Peter PARKS / AFP) (Photo by PETER PARKS/AFP via Getty Images)

AFP via Getty Images

As the calendar turns to 2024, Hong Kong is on the crypto regulatory spotlight once again. The city has been leading the charge in embracing cryptocurrency and blockchain technology, and recent policy briefs from the Securities and Futures Commission (SFC) and Hong Kong Monetary Authority (HKMA) show their dedication to providing clear regulations and protecting investors. In this article, we’ll delve into the latest developments in Hong Kong’s crypto regulatory framework, focusing on three policy briefs: the SFC’s Tokenization Circulars and Circular on Authorized Funds with Exposure to Virtual Assets, as well as the HKMA’s Proposal to Implement the Regulatory Regime for Stablecoin Issuers in Hong Kong.

Tokenization Circulars

Let’s start with the exciting news about tokenization-related activities. The SFC has issued two important circulars to address the risks and regulatory requirements in this area. The first one focuses on intermediaries involved in tokenized securities-related activities. It classifies “Tokenized Securities” as a subset of “digital securities” and emphasizes the importance of complying with existing regulations. Intermediaries are required to manage risks like forking, blockchain network outages, and cybersecurity. The circular also emphasizes the need for adequate disclosures and due diligence on issuers and third-party providers to safeguard investor interests.

The second circular tackles the tokenization of SFC-authorized investment products. While the SFC supports the tokenization of retail investment products, it’s still considering its position on secondary trading. The circular aims to bring regulatory certainty, support innovation, and protect investors. It provides guidelines for the issuance and distribution of tokenized investment products, including requirements for licensing, governance, operational capabilities, and investor disclosures.

Circular on Authorized Funds with Exposure to Virtual Assets

Now let’s talk about the SFC’s Circular on Authorized Funds with Exposure to Virtual Assets. This circular outlines the requirements for authorizing the public offerings of investment funds with exposure to virtual assets. The SFC opened the door for exchange-traded funds (ETFs) seeking exposure to virtual assets through futures contracts in October 2022. This move effectively paves the way for spot virtual asset ETFs to enter the market.

The circular lays out several key requirements for SFC-authorized virtual asset (VA) funds. Management companies overseeing these funds should have a strong track record of regulatory compliance and at least one staff member with relevant experience in managing VA products. It also establishes eligibility criteria for virtual assets, allowing investments only in VA tokens accessible to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs). Additionally, the circular sets criteria for investment strategies, custody standards, valuation methods, and disclosure obligations. It emphasizes the importance of active management for funds adopting a futures-based investment strategy.

Proposal to Implement the Regulatory Regime for Stablecoin Issuers in Hong Kong

Recognizing the growing significance of stablecoins in the digital asset ecosystem, the HKMA has proposed a regulatory regime for stablecoin issuers. This proposal aims to address associated risks, ensure transparency, protect investors, and mitigate potential systemic risks. The regulatory framework emphasizes the adherence of stablecoin issuers to capital, liquidity, and risk management standards.

To foster a robust stablecoin ecosystem in Hong Kong, the proposal emphasizes collaboration with international regulatory bodies and alignment with global standards. It aims to create a secure environment for stablecoin issuers to operate, helping the city establish itself as a trusted global hub for stablecoin innovation. By implementing clear guidelines and regulatory oversight, Hong Kong is paving the way for stablecoin growth and development.

Implications and Conclusion

These recent developments reflect Hong Kong’s proactive approach to regulating the crypto industry. By providing regulatory clarity, managing risks, and prioritizing investor protection, Hong Kong aims to position itself as a leading global hub for digital asset innovation and investment. These policy briefs demonstrate the city’s commitment to fostering innovation while ensuring the stability and integrity of its financial markets.

The regulatory frameworks outlined by Hong Kong’s regulators create an environment that encourages businesses and investors to participate in the evolving digital asset landscape. By addressing tokenization-related activities and investment funds with virtual asset exposure, Hong Kong aims to attract institutional investors and facilitate the development of innovative financial products. The city may become the 2nd major jurisdiction to offer spot Bitcoin
ETF, and could even approve for other large cap virtual asset ETFs before the United States. Its stablecoin regime places it close behind other progressive Asian jurisdictions, with Japan and Singapore also announcing stablecoin frameworks last year.

However, it’s important for the regulatory framework to remain adaptable to emerging challenges and developments in the crypto industry. Ongoing monitoring and collaboration with international regulatory bodies will be crucial in ensuring that the regulatory framework remains effective and responsive to the evolving crypto landscape.

In conclusion, Hong Kong’s recent policy briefs highlight its commitment to providing clear regulations and protecting investors in the crypto sector. As the city continues to foster innovation, it is expected to attract more businesses and investors, solidifying its position as a global leader in the digital asset space. Get ready for an exciting journey in the Year of the Dragon!

Crypto Market Insights: Turning A Corner In 2024

A view of the New Year’s Eve ‘2024’ Numerals (Photo by Lokman Vural Elibol/Anadolu via Getty Images)

Anadolu via Getty Images

2023 was quite a turbulent year for the digital asset industry, with the ongoing saga of FTX, Silicon Valley Bank collapse, massive fines and penalty of Binance, among others. The corner seems to be turning and 2024 is kicking off with great momentum across multiple fronts.

Making a Comeback

Positive market sentiment has returned, with Bitcoin (BTC) showing once again why it is an increasingly relevant asset. With the imminent launch of spot exchange-traded funds (ETF) across the globe, and the upcoming halving in April, one can only imagine where it’ll be by the end of the year. It is important to note that while spot BTC ETF offerings by the likes of BlackRock
, Fidelity and VanEck are gaining headline attentions, similar products will be launched in other jurisdictions, including in Hong Kong where it’ll likely be one of the earliest front-runners in Asia to allow spot virtual asset ETFs.

Fiat-backed Digital Currencies

Stablecoins, tokenized deposits and central bank digital currencies (CBDC) are also pushing hard into the ideation of “international finance 2.0”, and the dominance of the US dollar based global economy may start to see some divergence through these new types of digital currencies in direct cross-border transactions and 24/7 real-time settlements.

Local currency pegged stablecoins have made a comeback over the past few months, though their respective circulations still dwarf those that are USD-based. With new stablecoin regulations and consultations announced in Japan, Singapore, Hong Kong, United Kingdom and others, the gap will narrow and create new currency-to-currency dynamics between economies. In the meantime, it has been reported that over 70% of the world’s central banks have experimented with CBDCs, highlighted by various projects in collaboration with the Bank for International Settlements (BIS), including Project mBridge, Guardian, Mariana, among others.

Evolving Landscape for Digital Infrastructure

The layer-1 (L1) infrastructure conversations have mostly settled into a few clear winners, whereas the battleground for layer-2 (L2) and rollup rages on. Ethereum
based protocols still dominate the industry through vibrant ecosystems and developer communities, and with new improvement proposals such as ERC-4337 Account Abstraction, this will likely continue. Solana
has surprised many with its resilience and strong ecosystem development efforts in its post-FTX overhang, and has reflected as such in on-chain activities and total value locked (TVL).

Layer-2 scaling solutions have sprung up across the globe, offering varying alternatives to provide additional capabilities to improve scalability, privacy and cost-effectiveness. Numerous Zero-Knowledge (ZK) rollups have entered the market, though in time these will be commoditized and the emphasis being placed back on applications and protocols that provide cross chain interoperability, but more importantly, interconnectivity between traditional finance (TradFi) and decentralized finance (DeFi).

Not to be outdone, development of layer-2 solutions on the Bitcoin network have accelerated as well, as the new BRC-20 token standard has driven significant transaction volume on the main chain. One of the benefits of BRC-20 is that everything happens completely on-chain without the use of smart contracts or other centralized mediums, a big step towards trustless network operations. This is where a layer-2 solution can take a lot of the token minting and trading transactions off the main chain without driving up transaction fees on the network.

Regulatory Frameworks move into High Gear

On the regulatory front, global policies around centralized finance (CeFi) have mostly been enacted with similar levels of consistency and protectionary measures. The EU implementation of MiCA has established best practices for others, while jurisdictions vying to be digital asset centers have begun to advance towards policy frameworks for stablecoins, DeFi, decentralized identity and self-hosted wallets. This is further aided by tremendous research and development from international standards setting bodies such as IOSCO and Financial Stability Board (FSB), further moving the overall industry into a maturing regulatory environment. The Crypto Council for Innovation has published a recap of crypto policy in 2023 to provide additional insights.

My Observations for the Upcoming Year

1/ The launch of tokenized real-world assets (RWA) on “public networks” will continue, further showcasing the benefits of open sourced technology and decentralized infrastructure.

2/ USD based stablecoins will stay strong though its 90+% dominance will start to decrease. EURO, Yen and USD-pegged currencies (HKD, AED) will take on more market shares.

3/ Web3 will appear in more government development announcements than before, highlighting the importance of this new form of digital economy especially in the East.

4/ Bitcoin will take on larger shares in investment portfolios across major funds and corporate treasuries.

Asia Crypto Insights: Astrology And Tarot Card For Crypto Prediction?

Welcome to the weekly Asia Crypto Insights that touch on the latest news on digital assets developments and policy updates from across the Asia Pacific region. Click here for the weekly 2-min podcast.

Here are key events from last week:

  • SFC and HKMA issues joint circular on VA related activities for retail
  • ETH Hong Kong kicks off with 2500 visitors and 60% from abroad
  • Money Laundering Crypto Scandal unravels in Australia
  • Thailand investors using mystical methods for crypto investments

SFC and HKMA issues joint circular on VA related activities for retail

The Securities and Futures Commission (SFC) and Hong Kong Monetary Authority (HKMA) issued a joint circular on intermediaries’ virtual asset-related activities. The circular focuses on retail investor protection measures and covers five sections: 1) distribution of virtual asset-related products, 2) provision of virtual asset dealing services, 3) asset management services for virtual assets, 4) virtual asset advisory services, and 5) implementation for intermediaries. It emphasizes that virtual asset-related products are likely to be considered complex, and intermediaries can only partner with SFC-licensed platforms for virtual asset dealing services. Intermediaries should also comply with anti-money laundering requirements and the Travel Rule for virtual asset transfers.

This will allow retail clients to withdraw and deposit virtual assets as well as fiat currencies through virtual asset trading platforms (VATP) and authorized banks. Disclosures, suitability and knowledge tests, and restriction to only large cap and liquid virtual assets are requirements to service retail clients.

Hong Kong – Regulatory Landscape for Blockchain, Digital Assets and Decentralised Protocols

ETH Hong Kong, Sean Lee

ETH Hong Kong kicks off with 2500 visitors and 60% from abroad

The first ever ETH Hong Kong, a large scale Ethereum community event kicked off in the city this past week. The event attracted more than 2500 visitors over a 3-day programme, including hackathons, developer workshops, meet-ups, and expert panels. In attendance were technologists, entrepreneurs, investors, and enthusiasts who are eager to delve into the latest advancements and trends in the Ethereum ecosystem. Over 60% of all visitors were from abroad, an excellent barometer of the interests in Hong Kong’s emerging Web3 reputation.

Notable presenters included Vitalik Buterin (Ethereum), Georgios Vlachos (Axelar), Illia Polosukhin (NEAR), Mihailo Bjelic (Polygon), as well as Laura Shi (ConsenSys). I shared a panel with ex-regulators and compliance experts in discussing the regulatory landscape in Asia.

Money Laundering Crypto Scandal unravels in Australia

One of the largest money laundering scandals, involving over $230M Australian dollars, is being unraveled in the country. A 300-strong police operation spanning Melbourne, Sydney, Brisbane, Adelaide and Perth has arrested seven individuals thus far, after a 14-month investigation. Police said that the Changjiang Currency Exchange, a money transmitter, has been operating under the front of a legitimate currency exchange business, and has helped launder dirty funds and taint cryptocurrency from investment scams. This explains why the Australian Treasury is keen to unveil its proposal on crypto exchange regulation, as I covered last week.

TO GO WITH Thailand-lifestyle-culture-religion,FEATURE by Delphine THOUVENOT, Thanaporn PROMYAMYAI … [+] This picture shows a fortune teller using tarot cards to predict the future. (Photo credit CHRISTOPHE ARCHAMBAULT/AFP via Getty Images)

AFP via Getty Images

Thailand investors using mystical methods for crypto investments

In an unconventional twist, as Bitcoin climbed toward 35000 dollars last week, some Thai investors are reportedly relying on astrology and tarot card readings combined with technical analysis to guide their cryptocurrency investments. While financial analysts often use data and charts for predictions, it appears that a segment of Thailand’s crypto community is exploring mystical methods to foresee digital asset trends.

One would wonder if this may become a thing!

That’s all for the week ending October 27th. Stay tuned for next week’s Asia Crypto Insights!

Asia Crypto Insights: Bhutan, Happiest Nation On Earth, Introduces National Digital Identity On Blockchain

Welcome to the weekly Asia Crypto Insights that touch on the latest news on digital assets developments and policy updates from across the Asia Pacific region. Click here for the weekly 2-min podcast.

Here are key events from last week:

  • Bhutan introduces National Digital Identity on blockchain
  • South Korea establishes new regulation and SK Telecom launches crypto wallet
  • Australia Treasury released proposal to regulate digital asset platforms

THIMPHU, BHUTAN – The tiny Himalayan kingdom, a Buddhist nation of 635,000 people is wedged between … [+] China and India. (Photo by Paula Bronstein/Getty Images)

Getty Images

Bhutan introduces National Digital Identity on blockchain

Bhutan, long touted as one of the happiest nations on Earth, is set to launch its National Digital Identity (NDI) system, a blockchain-based identity platform. The NDI aims to provide Bhutanese citizens with a unified digital identity, allowing them to access various government services and conduct transactions through a single mobile application. The app, available on iOS and Android, will initially be linked to the Bank of Bhutan, enabling users to make transactions without the need for additional apps. The system incorporates biometric data for identity verification and emphasizes data privacy, and guarantees users exclusive controls over their data and the sharing of their personal information.

The move is viewed as Bhutan’s significant step towards its digital nation aspiration, promising wider inclusivity and easier global market access. The government plans to explore offline features for rural communities and engage the private sector for innovation.

South Korea establishes new regulation and SK Telecom launches crypto wallet

The Financial Supe­rvisory Service (FSS) is stepping up their efforts to enhance digital asset legislation by preparing regulations to supplement the Virtual Asset Users Protection Act that was passed earlier in 2023. The new regulations are expected to be ready by January before the law takes effect, with a stated aim to establish standards for listing procedures, internal controls, and the issuance and circulation volume of virtual assets. The National Assembly has also commissioned an in-depth research service for the new rules. This will lead to the establishment of a “Virtual Asset Market Supervision and Inspection System”.

The FSS acknowledges that the current legislation lacks regulatory detail and is working to give the agency more authority in addressing violations and manipulation in the crypto market. South Korean law enforcement is also establishing a joint virtual-asset crime investigation unit.

While the regulatory authorities are picking up steam in the country, Korean telecommunications giant SK Telecom is dialing into the crypto space by launching a wallet in partnership with Team Blackbird’s CryptoQuant. Users of the wallet will gain access to a blockchain-based application on their phones that lets them store tokens and access CryptoQuant’s on-chain analysis tools. The collaboration aims to provide users with enhanced security and insights into the cryptocurrency market, and the wallet will offer real-time monitoring of blockchain transactions, allowing users to make informed investment decisions.

SK Telecom’s entry into the crypto wallet market signals the growing mainstream adoption of cryptocurrencies in South Korea. The partnership with CryptoQuant leverages their expertise in blockchain data analysis, positioning the wallet as a reliable and data-driven solution for crypto enthusiasts.

Australia Treasury released proposal to regulate digital asset platforms

The Treasury has released its proposal to regulate digital asset platforms through an extension of the existing financial services regime. The move aims to protect users and reduce the risks associated with scams and exchange collapses. The regulations will apply to crypto exchanges holding more than $5 million AUD in aggregate or more than $1500 for any individual. They will be required to obtain an Australian Financial Services License (AFSL) and adhere to obligations such as providing services honestly and fairly, managing conflicts of interest, making disclosures, and meeting solvency and cash reserve requirements.

The government plans to consult on the proposed legislation until December 1 and expects exchanges to transition to the new regime within 12 months. The regulatory model aims to strike a balance between consumer protection and promoting innovation in the digital asset sector, especially after the FTX collapse that impacted 30,000 Australians.

That’s all for the week ending October 20th. Stay tuned for next week’s Asia Crypto Insights!

Crypto Market Insights: South East Asia Pushes Forward With Crypto

Welcome to the weekly Crypto Market Insights that touch on the latest news on digital assets developments and policy updates from across the Asia Pacific region.

Here are key events from last week:

  • South East Asia pushes forward with digital asset exchange licenses and partnerships
  • Singapore banks stepping up verification processes for bank account opening
  • Bank of Korea pilots CBDC project with public and private sector participation

HONG KONG, CHINA: (FILES) Photo dated 27 February 2005, shows Filipina domestic helpers queueing up … [+] at remittance centres in Hong Kong. AFP PHOTO/TED ALJIBE (Photo credit should read TED ALJIBE/AFP via Getty Images)

AFP via Getty Images

South East Asia pushes forward with digital asset exchange licenses and partnerships, a leading cryptocurrency exchange and digital wallet provider in the Philippines, has partnered with Circle Internet Financial to promote financial inclusion through remittances. has over 18 million users and is a major player in the region. The collaboration aims to raise awareness of using USDC, a regulated digital dollar stablecoin, for secure, low-cost, and near-instant international money transfers. Remittances play a crucial role in the Philippines’ economy, but conventional channels involve high fees and long transaction times. By leveraging real-time settlements and minimal transaction costs, and Circle seek to improve the remittance landscape and provide greater access to financial services for Filipinos abroad. The partnership aligns with the shared vision of fostering an inclusive financial future.

Meanwhile in Malaysia, crypto firm Hata has obtained preliminary approval from the Malaysian Securities Commission to become the fifth digital asset exchange in the country under the “Recognized Market Operator” framework. Additionally, Hata has been approved as a digital broker, allowing it to display trade orders from other regulated exchanges. The approval marks a significant milestone for Hata, which aims to simplify digital asset investment for institutional investors and high-net-worth individuals in Malaysia. Hata’s launch is expected within the next six to nine months.

Both of these developments reflect the growing role of blockchain and digital assets solutions in enhancing financial access and services, particularly in emerging markets like South East Asia.

Singapore banks stepping up verification processes for bank account opening

In Singapore, banks are stepping up scrutiny of customers and intensifying the sources of wealth as the city-state reels from a ballooning US$1.8 billion money-laundering scandal. The increased scrutiny follows recent cases involving illicit funds flowing through Singapore’s financial system, forcing the regulators to impose stricter controls to combat financial crime. The Monetary Authority of Singapore (MAS) has been urging banks to enhance their controls and warned of regulatory action for those failing to do so. The country’s regulator emphasizes the importance of robust risk management frameworks and is working closely with banks to improve their capabilities in detecting and preventing illicit financial activities.

As a result, banks are implementing more rigorous due diligence measures, including verifying the legitimacy of funds and assessing client risk profiles, and some are severing ties with higher-risk customers. Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) are among those who are strengthening the verification processes, which leads the industry to speculate that the waiting period to open a private banking account will increase from less than one month previously, to three to four months moving forward.

Bank of Korea pilots CBDC project with public and private sector participation

The Bank of Korea (BOK) is set to initiate a pilot program for central bank digital currency (CBDC) infrastructure. This move aligns with the growing trend of nations exploring CBDCs. The pilot project, jointly announced by the BOK, the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS), aims to assess the technical infrastructure for a CBDC. The Bank for International Settlements (BIS) will provide expert technical support for the pilot, which will involve both private banks and public institutions.

The pilot program will test both retail and wholesale CBDC use cases. In the wholesale CBDC framework, banks will tokenize their deposits and circulate them within a network monitored by the BOK, FSC, and FSS. The retail CBDC’s live testing is scheduled to commence in Q4 2024. While the pilot does not guarantee eventual implementation, nevertheless it represents a significant step towards the future monetary system and brings South Korea closer inline with other CBDC initiatives from across the Asia Pacific region.

That’s all for the week ending October 13th. Stay tuned for next week’s Crypto Market Insights!

Crypto Market Insights: Bank Of International Settlements Work With Asian Central Banks Through Projects Mariana And Mandala

Welcome to the weekly Crypto Market Insights that touch on the latest news on digital assets developments and policy updates from across the Asia Pacific region.

Here are key events from last week:

  • BIS announced Projects Mariana and Mandala with Asian central banks
  • UBS launched its first tokenized VCC fund pilot in Singapore
  • HKEX builds a smart contract based settlement platform on Stock Connect

Photo: Silas Stein/dpa (Photo by Silas Stein/picture alliance via Getty Images)

dpa/picture alliance via Getty Images

BIS announced Projects Mariana and Mandala with Asian central banks

The Bank of International Settlements (BIS) announced two separate initiatives, Project Mariana and Project Mandala.

Project Mariana was developed jointly by three BIS Innovation Hub centers together with Banque de France, Monetary Authority of Singapore (MAS), and Swiss National Bank. The project successfully conducted a proof of concept, testing cross-border trading and settlement of wholesale CBDCs (wCBDCs) in hypothetical Euros, Singapore dollars, and Swiss francs. The project relied on three key elements: a common technical token standard provided by a public blockchain, bridges for seamless transfer of wCBDCs across networks, and an Automated Market Maker
(AMM) for automated spot FX transactions. The AMM, a specific type of decentralized exchange, utilized innovative algorithms to pool liquidity from the different wCBDCs, enabling automatic pricing, execution, and immediate settlement of spot FX transactions.

This architecture addresses the needs of central banks for oversight and autonomy, while facilitating efficient cross-border holding, transfer, and settlement of wCBDCs for financial institutions. The use of a common token standard on a public blockchain promotes interoperability and seamless exchange of wCBDCs across various local payment and settlement systems maintained by participating central banks. A fascinating use case combining centrally managed assets with decentralized finance (DeFi).

Project Mandala was spearheaded by BIS Innovation Hub Singapore Centre with the Reserve Bank of Australia (RBA), Bank of Korea (BOK), Bank Negara Malaysia (BNM), and MAS, as well as supported by simulated financial institutions, to examine the potential of embedding jurisdiction-specific policy and regulatory requirements into a common protocol, simplifying cross-border use cases like foreign direct investment, borrowing, and payments. One of the primary barriers to fluid cross-border payments is the inconsistency in policy and regulatory frameworks across jurisdictions, leading to extended transaction times, heightened regulatory compliance responsibilities, and stakeholder uncertainty. The project aims to mitigate these challenges by automating compliance processes, enabling real-time transaction scrutiny, and offering enhanced clarity on country-specific regulations.

UBS launched its first tokenized VCC fund pilot in Singapore

In collaboration with traditional financial institutions and Fintech providers to improve market liquidity and access for clients, UBS Asset Management has introduced a tokenized investment fund on the Ethereum
public blockchain. The fund, known as a Variable Capital Company (VCC), was launched as part of Singapore’s Project Guardian pilot, which aims to bring real-world assets onto blockchains. The VCC fund is structured as a smart contract on Ethereum and utilizes the firm’s in-house tokenization service called UBS Tokenized. This allows UBS Asset Management to handle various functions such as processing fund subscriptions and redemptions.

The initiative marks a significant milestone in UBS’s exploration of fund tokenization, building upon their expertise in tokenizing bonds and structured products. In November 2022, UBS launched the world’s first digital bond that is publicly traded, followed by the firm issuing a USD 50 million tokenized fixed rate note in December 2022. Earlier this summer in June 2023 UBS also originated CNH 200 million of fully digital structured notes in collaboration with Bank of China International.

HKEX builds a smart contract based settlement platform on Stock Connect

Hong Kong Exchanges and Clearing Limited (HKEX) has launched Synapse, a settlement acceleration platform on top of the Stock Connect system which enables Hong Kong based investors to access stocks in mainland China. Synapse aims to enhance market efficiency and transparency for Northbound Stock Connect participants by automating and streamlining post-trade operations. The platform utilizes the latest technology, including DAML smart contracts, to standardize and streamline post-trade workflows, reducing settlement risks and improving operational efficiencies.

Synapse is part of HKEX’s ongoing commitment to building a marketplace of the future. It is a significant development in the Stock Connect program, which facilitates mutual market access between Mainland Chinese markets and Hong Kong, allowing international investors to better manage their post-trade operations across different time zones. It will be linked with The Depository Trust & Clearing Corporation (DTCC) through its Institutional Trade Processing (ITP) service.

That’s all for the week ending October 6th. Stay tuned for next week’s Crypto Market Insights!

Crypto Market Insights: Taiwan Issues New Regulatory Measures And Thailand Taxes Foreign Crypto

Welcome to the weekly Crypto Market Insights that touch on the latest news on digital assets developments and policy updates from across the Asia Pacific region.

Here are key events from last week:

  • Taiwan’s regulator outlines new key measures for crypto firms
  • Personal income tax will now include foreign crypto trading in Thailand
  • Tokenization of authorized investment products now a possibility in Hong Kong

Taipei 101, Landmark of Taiwan in the evening.


Taiwan’s regulator outlines new key measures for crypto firms

In Taiwan, the regulator is taking a “prevention is better than cure” approach, and outlines new key measures for the crypto industry. The Financial Supervisory Commission (FSC) has issued guidelines for domestic crypto exchanges while placing restrictions on offshore exchanges unless they comply with regulations. These new guidelines focus on enhancing customer protection and oversight in the cryptocurrency industry.

Domestic crypto platforms in Taiwan must ensure the separation and custody of assets, establish review standards for virtual asset listing and delisting, and strengthen information disclosure. Offshore exchanges seeking to operate in Taiwan must register with the FSC and comply with anti-money laundering regulations. Unregistered foreign virtual asset platform operators (VATP) are prohibited from soliciting business in Taiwan or targeting Taiwanese nationals. Crypto platforms are also not allowed to engage in derivative financial product transactions involving virtual assets or virtual asset businesses resembling securities.

Taiwan’s crypto exchanges are expected to form an industry association and develop self-regulatory rules based on the FSC’s guidelines. Currently, nine exchanges have established a working group for this purpose. The country’s Ministry of Economic Affairs is also planning to incorporate a crypto business category in its commercial group classification. The FSC has said that these guidelines aim to provide legitimacy, oversight, and a clear growth path for the crypto industry, ensuring compliance and public trust in Taiwan.

Personal income tax will now include foreign crypto trading in Thailand

Thailand’s Revenue Department is planning to impose personal income tax on foreign revenues, including income from cryptocurrency trading, for individuals residing in the country for more than 180 days. The new rule will take effect on January 1, 2024, and requires individuals to declare any income earned overseas, regardless of whether it was intended for use in the local economy. Previously, only foreign income remitted to Thailand in the year of earning was taxed.

The policy targets residents trading in foreign stock markets through foreign brokerages, cryptocurrency traders, and those with offshore accounts.

On the regulation front, there is a possibility of a shift in the tight scrutiny of the crypto industry with the recent election of a new prime minister who has shown support for crypto-friendly investment initiatives. Whether this will impact digital asset regulations by the country’s Securities and Exchange Commission remains to be seen, as the regulator has recently implemented guidelines that warn about the risks associated with cryptocurrency trading and has prohibited crypto lending services.

Tokenization of authorized investment products now a possibility in Hong Kong

At the recent Bloomberg Buy-Side Forum in Hong Kong, the city’s Securities and Futures Commission (SFC) announced the plan to release guidance on the tokenization of authorized investment products in the near future. Christina Choi, the executive director of investment products at the SFC, mentioned that the regulator is working on detailed guidance for tokenization.

The SFC’s current approach is to prioritize primary dealing of tokenized SFC-authorized products due to the early stage of development of virtual asset services platforms (VATPs) in Hong Kong. In June, Hong Kong introduced a crypto licensing regime for VATPs, allowing licensed exchanges to offer retail trading services.

Choi also highlighted the potential risks and challenges associated with tokenization, stating that secondary trading of tokenized SFC-authorized products on VATPs requires cautious consideration. Secondary trading amplifies certain risks that may be more manageable in primary dealing but become more complex in a 24/7 trading environment. Choi compared tokenised products in secondary trading to exchange-traded products, with the key difference being that they are represented as tokens instead of traditional stocks.

This continues to signal the city’s push into the asset tokenisation space, as evident by the government’s issuance of 800M HKD of tokenised green bonds earlier this year, and the tokenisation of debt securities from Bank of China in Hong Kong with UBS underwriting the issuance and placing with clients in Asia.

That’s all for the week ending September 29th. Stay tuned for next week’s Crypto Market Insights!