2023 marked a pivotal year in the Asia-Pacific (APAC) region’s approach to crypto regulation, influenced significantly by the preceding implosion of Sam Bankman-Fried’s FTX exchange and the collapse of of Terra, the algorithmic stablecoin created by Korean entrepreneur Do Kwon.

These negative developments likely influenced governments across the globe, because the following 12 months saw an extraordinary boom in crypto policy regulation in APAC countries.

TRM Labs’ Global Crypto Policy Review & Outlook 2023/24 delves into the advancements in regulation as well as the regulatory challenges faced by major APAC markets, shedding light on their unique strategies and key developments in navigating the complex world of cryptocurrency.

Here’s a look at how crypto regulation evolved across 10 major APAC economies last year, and what regulatory or enforcement measures might be faced in 2024.

Australia

Australia distinguished itself with significant steps towards regulatory clarity in the realm of digital assets and payment stablecoins. The government, recognising the paramount importance of customer asset holding, integrated custody and related activities into the Australian Financial Services License regime, under the watchful eye of the Australian Securities and Investments Commission (ASIC).

The approach towards stablecoins was to regulate them similarly to fiat-based payment facilities, citing their functional resemblance. The Reserve Bank of Australia (RBA) also played a crucial role by exploring the concept of retail and wholesale Central Bank Digital Currencies (CBDC) through its eAUD pilot programme, which focused on a wide array of use cases and essential legal aspects.

In 2024, the anticipation is high for the draft legislation encompassing digital assets and payment stablecoin frameworks. Enforcement actions by ASIC and increased regulatory focus by the Australian Transaction Reports and Analysis Centre (AUSTRAC) are expected to escalate, with an emphasis on combating crypto-related criminal activities.

Hong Kong

Hong Kong demonstrated remarkable agility among APAC countries in enhancing local crypto regulation with its expanded framework. The Securities and Futures Commission (SFC) introduced a mandatory virtual asset service provider (VASP) licensing regime, a groundbreaking move allowing retail cryptocurrency trading for the first time. This rapid development was complemented by the immediate issuance of retail crypto licenses.

The Hong Kong Monetary Authority (HKMA) proposed stablecoin legislation, driving innovation with projects like the tokenised green bond and the e-HKD pilot. Enforcement was also heightened, focusing on unlicensed platforms and fraudulent activities, including the significant JPEX case.

The coming year is expected to witness further regulatory advancements and innovation, particularly with the HKMA’s stablecoin framework implementation and the SFC’s tokenisation guidelines.

India

Despite its central bank’s scepticism towards cryptocurrencies, India refrained from advocating for bans during its presidency of the G20 summit, choosing instead to support the establishment of global standards.

In pursuit of clearer regulatory guidelines, Anti-Money Laundering (AML) registration requirements were enforced from March 2023. By the end of December 2023, a total of 31 cryptocurrency service providers had complied with the registration process.

The Financial Intelligence Unit-India (FIU-India) took action against nine exchanges on grounds of suspected illegal activities. Moreover, the Directorate of Enforcement in India confiscated over 1,144 crore Indian Rupees (approximately US$130 million) linked to crypto-related money laundering offences.

However, the Supreme Court of India has expressed criticism over the government’s lack of a legislative framework to effectively conduct crypto-related investigations. Despite this, the likelihood of a dedicated crypto bill being passed in the upcoming 12 to 18 months remains low.

Indonesia

At the start of 2023, Indonesia initiated a comprehensive reform of its financial sector with the introduction of an omnibus bill. This bill, among other changes, entails the transfer of regulatory authority for cryptocurrencies from Bappebti, the commodities regulator, to OJK, the securities regulatory body. This transition is currently in progress.

In addition, Indonesia established its national cryptocurrency exchange under the supervision of Bappebti. This move aims to establish a trading ecosystem for crypto assets that is equitable and reasonable, ensures legal certainty, and prioritises public protection. As Indonesia progresses through this period of regulatory transition, it remains to be seen whether further clarity in regulations will emerge in 2024.

Japan

Japan, as a forerunner in the adoption of customised cryptocurrency regulations, rolled out both the Travel Rule and stablecoin regulations in June 2023. Prior to this, the Japan Virtual Currency Exchange Association (JVCEA) had been implementing Travel Rule requirements on a self-regulatory basis since April 2022, in response to a directive from the Financial Services Agency (JFSA). However, the introduction of new legislation transformed compliance into a legal obligation.

The legislation passed by the Japanese parliament in the preceding year stipulated that only licensed banks, registered money transfer agents, and trust companies are authorised to issue stablecoins. Consequently, a multitude of financial institutions are preparing to launch stablecoins in 2024.

To boost growth in its Web3 and cryptocurrency sector, Japan’s ruling party has put forth a series of initiatives detailed in a whitepaper titled “Japan is back, again”. These initiatives encompass further tax reforms, the introduction of cryptocurrency-specific accounting standards, and the legal recognition of decentralised autonomous organizations (DAOs).

Additionally, Japan has been actively engaged in experimenting with CBDCs, initiating its first pilot programme in collaboration with the private sector in April 2023. As we look towards 2024, Japan is anticipated to continue striking a balance between regulatory supervision and innovative development.

South Korea

In June 2023, South Korea enacted the Virtual Asset User Protection Act, marking its inaugural comprehensive digital asset law. This development followed the 2022 collapse of Terra. Under this Act, the Financial Services Commission (FSC) became the primary regulator for virtual assets, endowed with powers to gather information, a role shared with the Bank of Korea.

The Act is notably focused on consumer protection, imposing stringent penalties for market misconduct and manipulation. This legislation represents the initial phase of an anticipated trilogy in cryptocurrency law in South Korea.

Earlier in the year, the FSC disclosed details of its regulatory framework for security token offerings. This framework applies to tokens backed by assets that are classified as securities, with other tokens falling under the broader digital asset legislation.

Looking ahead to 2024, South Korea is poised to intensify its efforts in curbing cryptocurrency-related crimes, particularly those originating from North Korea. The FSC is set to unveil further details on the implementation of this new Act, which is expected to be operational from July 2024.

Malaysia

2023 witnessed a significant surge in new approvals within Malaysia’s digital asset sector, following the announcement of initiatives for the development of digital-related capital markets in October 2022.

The Securities Commission (SC) of Malaysia granted approvals for several firsts in the country’s digital asset landscape: a new digital asset exchange – the first since 2021, the inaugural digital-asset focused fund manager, and the first set of digital asset custodians.

Concurrently, Malaysia’s cryptocurrency sector faced challenges, notably in October 2023, when a landmark court decision mandated a crypto exchange to reimburse a customer for assets lost to hackers, a situation exacerbated by apparent identity theft.

As we look towards 2024, the dual focus on fostering growth in the digital asset sector while ensuring consumer protection is expected to remain a key theme in Malaysia.

Singapore

For Singapore, the year 2023 was dedicated to finalising its consumer protection policies. The new regulations, finalised in November 2023 following a consultation period that began in October 2022, established strict boundaries for retail investors seeking to access regulated cryptocurrency services.

For instance, crypto service providers licensed by MAS were prohibited from offering incentives, accepting payments via local credit cards, or providing lending and staking services to retail customers. Singapore’s policy framework also accommodates innovation in digital assets. Emphasising interoperability, MAS announced its support for three forms of digital money: tokenised bank liabilities, wholesale CBDCs, and regulated stablecoins.

Additionally, MAS finalised its framework for the issuance of stablecoins. This optional framework allows companies to acquire the esteemed ‘MAS-regulated stablecoin’ label by adhering to rigorous requirements, including 100% liquid asset backing and the provision for redeemability at par value.

The licensing of crypto entities continued robustly, with six new licenses issued in 2023, bringing the total number of licensed providers to 17. Another six entities received in-principle approvals, a critical step towards obtaining a full MAS license.

Looking forward to 2024, the focus is likely to be on implementing these consumer protection measures, set to commence in early to mid-2024 with a nine-month transition period.

Taiwan

Thailand

In the wake of the significant impact on Zipmex, Thailand’s second-largest cryptocurrency exchange, Thai regulators concentrated their efforts on consumer protection in 2023. In January, the Securities and Exchange Commission (SEC) of Thailand introduced new regulations governing digital asset custody.

These regulations mandated that custody providers implement specific policies and procedures concerning the development, design, access, and risk management of cryptocurrency wallets.

Furthermore, the SEC imposed a requirement for customer risk disclosure on licensed digital asset operators and prohibited them from providing lending and staking services. In addition to regulatory measures, Thailand enhanced its educational and enforcement initiatives to combat cryptocurrency-related scams.

In September, the Cyber Crime Investigation Bureau apprehended five individuals linked to a cryptocurrency investment scam that defrauded over 3,280 people of more than THB 2.7 billion Thai Baht (approximately US$75 million). The focus on consumer protection and the disruption of scams is expected to remain a priority in Thailand throughout 2024.

2024: Implementing Clarity and Standards

The year 2023 set the stage in APAC for establishing clearer and more effective frameworks in crypto asset regulation. As 2024 unfolds, the focus will likely shift towards implementing these frameworks, establishing benchmarks in the evolving digital asset landscape. Key areas such as the DeFi space remain under the spotlight, with questions about responsibility and oversight yet to be fully addressed.

The upcoming year promises to be one of significant action and progression in the APAC crypto regulatory domain, as nations strive to find a harmonious balance between innovation and regulation in this dynamic and ever-evolving sector.