• Asia’s first movers should watch closely as regulatory authorities fine- tune and clarify their digital asset frameworks. Singapore has already established a regulatory framework for stablecoin issuers, and Hong Kong plans to submit legislative updates soon that will form the basis of a stablecoin regulatory framework. These will provide regulators around the region with an opportunity to study and learn from stablecoin arrangements and place greater oversight on stablecoin issuers.
  • Some other countries in the region are in the early stages of thinking through their approach to digital assets and how to lay the foundation for regulatory frameworks, which will shape the trajectory and landscape of their digital asset industries. Private sector players can play a role in educating and sharing best practices with regulators in these markets as they consider the priorities of each government and their fintech goals.
  • Regulators will continue to focus on financial crime and risk management. Although virtual assets are emerging as an advanced and faster payment method, the anonymity they offer and associated lack of transparency make it easier to evade money laundering and financial crime measures. As virtual assets grow in scale and relevance, regulators will direct greater attention to address related financial crime risks.

Market-Specific Insights

First-Mover Markets

Hong Kong is moving to reclaim its position as Asia’s leading digital asset hub. Speaking at the International Conference on Central Bank Digital Currencies and Payment Systems April 11, Hong Kong Monetary Authority Chief Executive Eddie Yue said it is clear that a holistic digital money framework, comprising retail central bank digital currencies (CBDC), regulated stablecoins and tokenized deposits, is needed for the “healthy co-existence of public and private money to support our future digital economy.”

Hong Kong authorities are adopting the “same activity, same risks, same regulation” principle for the virtual asset regulatory framework and have made amendments to ordinances and legislation to lay the groundwork for it. Hong Kong rolled out stablecoin and CBDC sandboxes in March. At the end of April, spot bitcoin and ether exchange-traded funds went live on the Hong Kong Exchange, making it the first Asian jurisdiction to offer these funds. In the latter half of 2024, the regulatory authorities will continue to provide guidance on the management of risks, including those related to network outages, cybersecurity and money laundering.

Japan has worked to clarify tax and other peripheral issues related to digital assets since late 2023. This effort has been driven by the ruling Liberal Democratic Party’s Web3 project team, which has been tasked with creating an enabling environment to develop Web3. The project team issued a white paper in 2023 on the national nonfungible token and decentralized autonomous organization strategy, but recent political scandals are putting pressure on the party — and Prime Minister Fumio Kishida — to prioritize issues important to voters, potentially dampening momentum for Web3 and digital assets policies. Japan has also been engaged in a long-term study, like many of its Asian peers, on the technical feasibility of CBDC. The Bank of Japan maintains that there should be a public need for the digital currency when considering its issuance, but in the meantime, it is engaging with the private sector via a CBDC forum and resolving existing legal issues related to the issuance of a digital yen.

In Singapore, amendments to the Payment Services Act entered into effect in a phased manner, starting in April. The amendments provide for greater user protection and financial stability requirements, with the scope expanded to cover digital asset custody, token payments and transfers and cross-border payments. Although the implementation of these regulations will be front of mind for virtual asset businesses in 2024, Singapore remains focused on initiatives like Project Guardian, which tests the feasibility of asset tokenization and decentralized finance with other policymaking bodies and private sector players. The Monetary Authority of Singapore recently added new asset tokenization pilot projects. Stablecoin offerings are expected later this year, following the regulatory framework established in 2023.

Markets Undergoing Significant Shifts

Vietnam, Australia, Indonesia and Taiwan will likely see movement on regulatory developments in the latter half of 2024, which will impact the regional virtual assets landscape going forward.

Most consequentially is Vietnam, which has among the highest trading volume for digital assets in Southeast Asia and globally. According to one survey, around 20 percent of the population owns cryptocurrencies. Earlier this year, the government tasked the Ministry of Finance with developing a legal framework for virtual assets and educating the country’s management and supervisory agencies about the risks involved, such as money laundering and financial crime. The framework is expected to be completed by May 2025 and will manage and regulate industry growth in Vietnam.

Australia will provide regulatory clarity for digital assets, mainly by making exchanges subject to existing financial services laws and requiring exchanges of a certain size to obtain a license. The measures are intended to better protect consumers and allow startups to continue innovating. In the second half of the year, the Reserve Bank Australia and the Treasury Department will provide a look into their thinking on CBDC, taking stock of the research to date and considering a path forward. Taiwan will also seek to implement regulations to protect consumers when it unveils measures to prevent fraud and collapses in the autumn of 2024, less than a year after enacting its first comprehensive cryptocurrency legislation into law.

Indonesia will undergo its own period of adaptation in the coming months. In January 2025, regulatory authority over digital assets will shift from the Commodity Futures Trading Supervisory Agency, which oversees commodities, to the Financial Service Authority, which oversees financial services. This will be accompanied by a new set of regulations requiring new digital asset products that are launched in Indonesia to go through a regulatory sandbox evaluation first before they are licensed to operate in the country.

In Taiwan, the Financial Supervisory Commission plans to propose a draft of digital asset regulations in September, aiming to enhance regulations for digital asset markets and ensure investor safety. The draft bill seeks to address the growing intersection between digital assets and the traditional financial system, with a need to safeguard stability, and the growing instances of criminal activity involving digital assets. In recent weeks, amendments have been introduced to the Money Laundering Control Act that would bring virtual assets and virtual asset service providers, who must be approved by the regulator, under Taiwan’s anti-money laundering controls.

We will continue to keep you updated on developments in the financial services sector as they occur. If you have comments or questions, please contact BGA Senior Director Chi-Jia Tschang at chi- jiatschang@bowergroupasia.com.

Best regards,

BGA Financial Services Team