Digital assets have become a focal point for regulators worldwide, especially in financial hubs like Hong Kong and Singapore. Both jurisdictions aim to balance innovation with regulatory oversight, fostering sustainable growth in the digital asset sector while ensuring financial stability and investor protection. This article provides an overview of the regulatory landscape for digital assets in these two key Asian markets.

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Digital Assets in Hong Kong

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Primary Regulators

In Hong Kong, the regulation of digital assets involves two main authorities:

  • Securities and Futures Commission (SFC): Oversees the securities and futures markets, including digital assets classified as securities.
  • Monetary Authority of Hong Kong (HKMA): Regulates banking and payment systems, including stablecoins and digital currencies.

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Existing Regulations

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SFC Licensing Regime

The SFC requires cryptocurrency exchanges and wallet providers dealing in securities or offering asset management services to obtain a Virtual Asset Service Provider (VASP) license. This licensing regime ensures that entities operating in the market are compliant and meet specific standards, enhancing investor protection and market integrity.

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Anti-Money Laundering (AML) Regulations

Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) guidelines, virtual asset service providers must conduct customer due diligence (CDD) before initiating a business relationship. CDD serves as Hong Kong’s regulated version of Know Your Customer (KYC) procedures, requiring the implementation of due diligence and reporting measures to prevent money laundering and terrorist financing.

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Guidelines on Token Offerings

The SFC has issued guidelines clarifying when token offerings may be considered securities offerings. If a token is classified as a security, it falls under the SFC’s regulatory framework, and issuers must comply with the relevant securities laws and regulations.

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Sandboxes

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Stablecoin Sandbox

The Financial Services and the Treasury Bureau (FSTB) and the HKMA are proposing new legislation to regulate fiat-referenced stablecoin (FRS) issuers in Hong Kong. Entities issuing an FRS in Hong Kong, issuing a Hong Kong dollar-referenced stablecoin, or actively marketing FRS issuance to the Hong Kong public would need to obtain a license from the HKMA. Authorized institutions, licensed corporations, and licensed VASPs may offer FRS to the public. The stablecoin sandbox is currently in progress, aiming to establish a regulated environment for stablecoin operations.

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Central Bank Digital Currency (CBDC) Sandbox

Since 2017, the HKMA has been exploring Central Bank Digital Currencies (CBDCs). Through consultations and pilot programs, the HKMA is working on the potential implementation of the e-HKD, Hong Kong’s digital currency. More details are available on the HKMA’s CBDC page.

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Government Stance

The Hong Kong government is generally supportive of innovation in financial technology and digital assets. While emphasizing the importance of investor protection and regulatory compliance, it aims to position Hong Kong as a leading global hub for digital innovation. The government’s approach involves fostering a conducive environment for fintech growth while ensuring financial stability.

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Digital Assets in Singapore

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Primary Regulator

In Singapore, the regulation of digital assets is primarily overseen by the:

  • Monetary Authority of Singapore (MAS): The central bank and integrated financial regulator, responsible for financial institutions, including those dealing with digital assets and cryptocurrencies.

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Existing Regulations

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Payment Services Act (PSA)

Implemented in January 2020, the Payment Services Act (PSA) serves as an overarching regulatory framework for both traditional and cryptocurrency exchanges. Under the PSA, digital currencies are referred to as Digital Payment Tokens (DPTs). Bitcoin and Ethereum are recognized as cryptocurrencies by the MAS. The PSA mandates that a wide range of payment service providers conduct due diligence on their customers as part of Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) measures.

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Securities and Futures Act (SFA)

The Securities and Futures Act (SFA) governs the offering of digital tokens considered securities. Tokens classified as securities are subject to the same regulations as traditional securities, including licensing requirements, prospectus registration, and ongoing compliance obligations.

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Sandboxes

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Project Guardian

Singapore has launched initiatives like Project Guardian, which explores the tokenization of financial assets and the management of risks associated with digital assets. These sandbox programs allow financial institutions and fintech companies to experiment with innovative solutions under regulatory supervision, promoting growth while safeguarding the financial system.

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Government Stance

The Singaporean government adopts a proactive and supportive approach toward blockchain technology and fintech innovation. It focuses on creating a balanced regulatory framework that fosters growth while ensuring consumer protection and financial stability. By actively promoting Singapore as a global hub for digital assets and fintech, the government encourages sustainable development in the sector.

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Regional Outlook

Governments in Asia, particularly Hong Kong and Singapore, are at the forefront of digital asset regulation. They aim to balance innovation with mindful regulation by:

  • Establishing clear and comprehensive regulatory frameworks.
  • Implementing stringent AML and CFT measures to combat financial crimes.
  • Supporting innovation through regulatory sandboxes and pilot programs.
  • Promoting international collaboration and adherence to global standards.