The Tale of Two Cities - Regulatory Outlook for Asia in 2022 | #24
[BlockchainAsia # 24] Key words: Hong Kong/Singapore/Japan/South Korea/China/India/crypto regulations
This is 2022’s first issue of Blockchain Asia. Coco again.
In this issue, I zoom in on 3 pairs of countries/regions in Asia — Hong Kong & Singapore, South Korea & Japan, China & India, to exclusively highlight the changes in their regulations towards crypto and blockchain.
Let’s dive in.
Hong Kong and Singapore
Not a lot of news coming out of Hong Kong in crypto regulations since 2020. Hong Kong Securities and Futures Commission (SFC) issued Type 1 and Type 7 licenses to OSL as a virtual assets operator in August 2020, no other operator has received a license.
SFC announced its regulatory framework for virtual asset portfolio managers, fund distributors, and trading platform operators starting in November 2018. SFC was expected to issue no more than 5 licenses of Category #7 to Hong Kong-based crypto asset trading operators.
Applicants for the license are monitored in a regulatory Sandbox before being deemed qualified for the #7 License. Some of the requirements for the license include offering products to institutions only and no futures products are allowed.
Singapore has been taking some market share of cryptocurrency businesses from Hong Kong with a more engaging and friendly regulatory environment. The Monetary Authority of Singapore (MAS) issued 6 digital token payment (a.k.a. cryptocurrency) services licenses in 2021, a requirement to operate digital asset-related businesses legally in the city-state.
MAS has turned down over 100 applications out of 170 for the digital token payment (a.k.a. cryptocurrency) services license. Among those not yet rejected, about 90 of them currently operate under the Payment Services Act exemption, and 6 of them have been approved in principle:
Independent Reserve (an Australian cryptocurrency exchange with operations in Singapore)
DBS Vickers (Singapore brokerage arm of DBS)
Hex Trust (Hong Kong custodian)
TripleA (Singapore end-to-end crypto payment company)
FOMO Pay (Singapore digital payment solution provider)
CoinHako (Singapore crypto exchange)
2 of the 6 are non-Singapore companies but all of them are APAC-headquartered.
Those that are operating under the exemption have a 6-month window, which means MAS has to give a yes or no to the applicants before the exemption expires within 2022! It is an ambitious effort given the central bank only approved 6 applications in the last quarter of 2021.
According to Ravi Menon, managing director of MAS, “We don’t need 160 of them to set up shop here. Half of them can do so, but with very high standards, that I think is a better outcome.”
Just like Hong Kong, Singapore is protective of its retail investors and conservative about derivative products.
Recently, the industry was taken aback by MAS’ guidelines issued on Jan 17, 2022, prohibiting crypto service providers from promoting their services to the general public due to high risks related to cryptocurrency. Two major Singapore ATM operators Daenerys & Co. and Deodi Pte were caught off-guard and had to shut down their BTC ATM machines.
Similar to Hong Kong, Singapore lacks a clear framework for crypto derivatives trading, which could be one of the reasons that FTX moved its headquarters to the Bahamas from Hong Kong, instead of to Singapore.
South Korea and Japan
South Korea has come down in a heavy-handed manner to regulate crypto trading. In 2021, the regulator required all the exchanges operating in the country to register with Financial Intelligence Unit (FIU) by Sept. 24; secondly, in addition to FIU certification, exchanges were required to partner with banks to ensure real-name accounts for traders on the exchange, otherwise, they would not be able to offer trading in the local currency, the Korean won.
As a result, 40 exchanges had to suspend all services last September, an additional 24 were not able to offer trading in the local currency, among them was Gopax, of which Digital Currency Group is the second-largest shareholder.
Only 4 local exchanges Upbit, Bithumb, Coinone and Korbit have met the regulatory requirements.
South Korea’s exchanges have started to require their customers to verify their private wallets, in an effort to comply with FATF Travel Rule guidelines.
Meanwhile, South Korea is not going to regulate NFTs as the regulators do not consider them “digital assets”. The government has laid out a plan to support its ambition to become the 5th largest metaverse market in the world. The government will support 40,000 professionals and 220 companies specialized in metaverse in the country. Softbank invested $150 mm in South Korea’s metaverse platform last year.
On the surface, Japan with a crypto market of $1 trillion has the most stringent regulations of any country and is a market not easy to enter for foreign players. However, compared with South Korea, it is a more mature market.
Since cryptocurrency was legalized in 2017 Japan’s regulator Financial Services Agency (FSA) has approved 34 companies that offer crypto spot and derivative products. Among them is Coinbase, which received approval from FSA last year. Coinbase is thus far the only foreign exchange that has received approval from FSA, which requires a foreign applicant to hold a license from its domestic jurisdiction as well.
One of the challenges facing Japanese exchanges is the lengthy screening process to list new tokens, which could take 6 months or longer. The Japanese Virtual Currency Asset and Exchange Association (JVCEA) is looking into easing listing rules.
Similar to South Korea, Japan is aggressively pushing to implement FATF Travel Rule, which will become mandated by April 2022 in Japan.
Most Japanese people still prefer to use cash. To accelerate the evolution to a cashless society, led by crypto exchange DeCurret, a consortium of about 70 Japanese firms, including the country's 3 mega-banks Mitsubishi UFJ Financial Group Inc, Mizuho Financial Group Inc, and Sumitomo Mitsui Financial Group Inc, is going to launch a yen-based digital currency DCJPY in 2022. DCJPY is being created to speed up money transfer and settlement. Japan’s central bank may consider incorporating DCJPY into its CBDC.
China and India
China is done with crypto. Please refer to Blockchain Asia #21 - End of an Era for more detail.
However, there is a hype of metaverse in China. The questions are how metaverse can be developed without crypto and how it can survive the government’s rigorous censorship of content. A metaverse with Chinese characteristics may be the answer.
Meanwhile, China’s CBDC e-CNY made its official debut at the Beijing Winter Olympics. There are over 100 million e-CNY wallets in China.
India, China’s neighbor to the south, has been flip-flopping between an outright ban and regulating crypto. One thing the two central governments have in common is pro-CBDC and anti-crypto.
Lately, more voices from the parliament have called for regulating crypto instead of banning it. A “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” is waiting to be passed by the parliament.
The Bill seeks to “create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India”. It also “seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses”.
Conclusion
Since 2021, these Asian countries have developed much more clarity in their stance and regulatory policies. China chose to ban crypto completely; India is shifting from trying to prohibit crypto to trying to regulate it. South Korea’s crypto industry went through a consolidation in 2021, while betting on NFTs and metaverse. Japan welcomes the first licensed U.S. exchange. Singapore has taken a more cautious and conservative approach in giving out licenses. Hong Kong so far has only given out one license.
Thank you for reading.