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How Crypto Regulation Is Being Done In Hong Kong, Singapore, and Japan

crypto regulation

Asia’s top financial centres are ready to accommodate the crypto industry, with measures in place to protect customers and the market through crypto regulation. Hong Kong, Singapore, and Japan are known for having the world’s most developed financial regulations, but each have taken individually different directions in regulating crypto, suiting each region’s specific needs.

In recent times, Hong Kong has opted to get even friendlier towards crypto, welcoming crypto firms to keep its status as a leading international finance centre. While Japan has been stringent on consumer protection, the country recently relaxed its strict screening process for crypto tokens.

As crypto becomes more mainstream, heavier regulatory bars are to be expected. Singapore on the other hand is expecting tighter regulations upon the aftermath of the collapse of Singapore-registered high-profile crypto firms like Three Arrows Capital and Terraform Labs – which some anticipate to be fairly restrictive.

Countries around the world such as UAE, Brazil, and more been developing the criteria for what crypto firms can do to obtain a virtual asset service provider (VASP) licence to legally operate in each region.

“The more developed markets in Asia are fairly advanced in providing clarity on what falls within the virtual asset service provider (VASP) framework,” Vivien Khoo, co-founder of the Asia Crypto Alliance said, noting that Hong Kong and Singapore have a “fairly similar” VASP framework.

Khoo notes that as crypto-friendly countries are looking to tighten regional collaboration, “it will be much harder to engage in regulatory arbitrage now in Asia.”

So, what regulatory framework changes can we see in the future, in clarity for crypto policies?

Hong Kong

Once a titan in the crypto industry – housing Bitmex and at one time the now-defunct FTX – as  limited regulation created immense opportunity. 

As the crypto boom happened, Hong Kong’s Securities and Futures Commission (SFC) scared off international crypto firms from entering the Hong Kong market by keeping a closer eye on token listings. China also chose to ban crypto, causing some fearing that the city-state would fall to neighbouring pressure.

As a result, Hong Kong’s crypto industry doubled down harder on NFTs, unlicensed exchanges, bitcoin machines, and using crypto to pay for everyday goods and services – hoping to make money until regulation hits. Compliance was difficult to apply for, with some companies complaining that regulators were slow to respond to licensing applications.

However, if Hong Kong were to actually ban crypto, regulators and legislators would not have been putting so much work into drafting regulations – plus, higher-ups would already have been given notice.

As talent and firms chose to leave en-masse after these difficulties, the city saw that it was about to lose its position as an international finance centre – prompting a change in attitude towards crypto.  

Hong Kong’s VASP regime

Emphasising that the city is autonomous in financial regulation from China, Hong Kong’s officials have launched a campaign to bring back crypto firms, announcing that they are halting plans to restrict retail customers from using licensed crypto exchanges, and bringing in a VASP licensing regime.

The incoming VASP regime which will be in effect June 2023, was slated to start in March, with applicants enjoying a grace period before it comes into enforcement. 

Under the VASP regime, only exchanges with Hong Kong VASP licences can operate in the city, but would not be able to serve retail customers yet. A government source says that Hong Kong is preparing for formal consultations on VASP licensing requirements for providers to offer services to retail soon.

Hong Kong’s Retail-Approved Tokens

On January 11, Hong Kong’s Securities and Futures Commission (SFC) Chief Executive Officer Julia Leung announced that the SFC is preparing a list of tokens that retail investors are able to invest in. 

According to Jason Choi, senior associate at law firm Dechert, this initial list of tokens may be very limited, predicting that the SFC will choose to work with coins they think are most safe. 

Currently, Hong Kong’s SFC is in the midst of creating a derivatives framework, but discussions with the industry are still in its infancy – and regulation in that area isn’t expected within this year. “If players want to stay in the Hong Kong market they are likely going to strip out some of their functions,” Choi said.

What can we see this year from Hong Kong in terms of crypto regulation?

Hong Kong is almost ready to roll out stablecoin regulation, with the Hong Kong Monetary Authority (HKMA) issuing a “Discussion Paper” on how it views its role in regulatory approaches for crypto assets, particularly stablecoins that can be used for payments. In the paper, the HKMA declares that it views that only licence-holding companies can issue stablecoins and cross-border payments in Hong Kong. 

The SFC is also anticipated to make further announcements on the issuance of security token offerings, and virtual asset structured products.

On a larger scale, Hong Kong is about to relax visa requirements to bring more fintech talent into the region – to further cement Hong Kong’s position as a leading international fintech hub.


Famous for its consumer protection measures, Hong Kong’s competitor is also seeking to take a position as a modern financial technology centre.

Singapore was amongst the first to be recognised for having an established regulatory framework, attracting a lot of crypto firms to set up shop in the country instead of Japan, where firms were faced with corporate taxes, and Hong Kong appearing not-so-crypto-friendly.

Singapore’s general attitude towards crypto is bullish. According to a Singaporean Web3 startup founder, many Singaporeans don’t view crypto exchanges as casinos, rather digital banks to boost their salaries and to invest in yield products.

“Our banking system is too conservative to offer similar product suites to simple folk,” the startup founder said. “Or they do, but charge ridiculous fees for needlessly complex financial products in the form of unit trusts and other garbage.” Singapore was recorded to be second in’s monthly unique visitors, trailing after South Korea.

Singapore’s conservativeness was taken to another degree after the collapse of Singapore-registered Terraform Labs and crypto hedge fund Three Arrows Capital, which gave even more reason for the city state to prioritise risk management.

To top it off, in November, Singapore began an investigation into local crypto exchange Hodlnaut, with allegations of cheating and fraud – right after the company revealed it had $13.3 million worth of crypto stuck in the now-defunct exchange FTX.

What’s to come this year for Singapore in terms of crypto regulation?

In late October 2022, the Monetary Authority of Singapore (MAS) proposed a set of new rules for those licensed in the local crypto industry to operate by – with the first being strict standards for stablecoin issuers. 

The regulator had also just ended a round of key consultations on stablecoins to curb consumer harm to retail, with conclusions from the sessions to be issued within Q2 2023. However, it’s unclear whether the MAS would include advice from the local crypto industry’s players.

Amongst the proposals includes requirements for setting capital and reserves, amongst “other activities that introduce additional risks” such as lending and staking (locking crypto to earn interest). This means that if approved, firms cannot lend out retail customers’ tokens. 

As for lending and staking, while requirements for risk disclosures are being explored, Nizam Ismail, CEO of Ethikom Consultancy and chairman of the regulatory and compliance sub-committee for the Blockchain Association of Singapore says that the MAS is leaning towards outright banning the popular form of crypto investment. “By putting in place blanket bans, Singapore-based platforms would be disadvantaged in not being able to offer these features,” said Ismail.

The same proposal also has a clause for decentralised finance (DeFi), where DeFi activities can potentially be substantially limited after approval. 

But there’s a fallacy – while banks and brokers can do securities lending, and in the case if digital assets are considered securities – why are they treated differently and can’t be loaned out?

Rahul Advani, policy director, APAC, at Ripple, has raised concerns that the MAS may expect digital asset service providers to have the same technological risk requirements as traditional banks. Advani adds that crypto firms  trend to other service providers that don’t have service-level agreements (SLA) that the MAS may agree with.

Regarding stablecoins, Singapore’s industry is waiting for the MAS’s decision to have non-bank stablecoin issuers subject to the same requirements. There are also questions about how the MAS will treat foreign-issued stablecoins used in the local market, that are not issued locally.

But it must be stressed that these rules are only applicable to crypto businesses registered and licensed with the MAS.

According to a representative from CoinHako, Singapore’s leading licensed exchange, “there is a potential risk that unlicensed and unregulated service providers become more attractive venues for the general Singapore public to trade digital assets.”


Japan was amongst the first countries to tackle regulating cryptocurrency exchanges – but only out of practicality. Japan’s Financial Services Agency (FSA) already had a draft for virtual currency law to fulfil a 2014 agreement with fellow members of the International Organization of Securities Commissions (IOSCO).

Surviving two large-profile hacks of local crypto exchanges – Mt Gox losing approximately 850,000 bitcoin in 2014, and $540 million of crypto from CoinCheck in 2018, Japan was ready to ramp up their crypto policy.

What rose from these events came to be known as one of the tightest consumer protection legislation worldwide, with Japan’s regulator placing high demands on exchanges, which caused some service providers to complain that these measures cut on their profitability. The regulations include a mandate to separate exchange and customer assets, where custodial exchanges were to hold most customer assets in cold wallets.

These strict policies however protected Japan’s FTX customer base. While other FTX entities went through tremendous losses, FTX Japan’s customers will get their funds back starting mid-February. Now, Japan has an edge to bring overseas crypto companies to begin operations on the island nation.

In December, the country approved a tax change where token issuers can be exempt from corporate tax on unrealised gains. This means that crypto projects are able to issue tokens without paying absurd amounts of taxes like before – the main reason why crypto firms opted to set up shop elsewhere.

Regarding the move, Akihisa Shiozaki, Liberal Democratic Party politician and secretary general of the party’s Web3 project team says “it’s definitely a clear signal from the Japanese government that we are pro-crypto.” 

What can we see this year from Japan in terms of crypto regulation?

Japan’s lawmakers are discussing the process of legalisation of decentralised autonomous organisations (DAO), with insiders expecting regulations to be issued before June – the end of this year’s legislative season in Japan. 

What will not happen is a strengthening or tightening of controls against crypto,” Shiozaki said.

Shiozaki says that the legislation aims to add clarity in taxation and provide formal legal structure to give limited liability to members who are involved in crypto projects – a problem most administrations haven’t yet quite tackled.

The politician adds that in legalising decentralised autonomous organisations, key themes in discussion include disclosure obligations, security offerings, and internal governance rules. 

Meanwhile, the FSA is planning to allow local stablecoin issuers to list foreign stablecoins in a new set of regulations – meaning that non-domestic stablecoins like USDT and USDC can be listed on local exchanges.

This is a huge pivot from Japan’s previous stance on stablecoins, and would reverse a ban on the local distribution of foreign-issued stablecoins placed since Terra’s collapse.In a draft regulation published late December 2022, local stablecoin distributors will be allowed to handle payments-focused stablecoins, if they maintain sufficient assets. The FSA is also seeking feedback until January 31 for these new regulations that will be applied in conjunction with the revised Payment Services Act, which are expected to take effect later this year.

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