Bank of Korea Governor Rhee Chang-yong revealed South Korea is considering a new registration regime that would allow domestic institutions to issue virtual assets, while warning that won-denominated stablecoins could enable capital flow circumvention. Speaking at the Asian Financial Forum in Hong Kong, Rhee emphasized that exchange rate volatility could trigger rapid shifts into USD stablecoins and large fund transfers. The announcement comes as South Korean regulators remain deadlocked over comprehens ...

Regulatory Developments - The year 2025 has seen a global theme of regulatory maturity, with financial hubs introducing clearer frameworks for digital assets and private markets while ensuring investor protection [1] - The UK’s Financial Conduct Authority (FCA) approved the London Stock Exchange (LSE) to operate the first Private Intermittent Securities and Capital Exchange System (PISCES), facilitating intermittent trading of private company shares [1][2] - Hong Kong emphasizes transparency and predictability in its virtual asset regulations, asserting that virtual assets are a lasting asset class that must develop responsibly [3][4] Market Innovations - The PISCES platform is viewed as a significant step towards creating a funding continuum from private to public markets, initially operating within a financial markets infrastructure sandbox [2] - Hong Kong's regulatory approach includes upcoming regulations for stablecoins and OTC virtual asset services, focusing on investor protection [4] International Collaboration - Global collaboration is crucial for regulatory maturity, with Hong Kong participating in Project mBridge, a cross-border CBDC initiative involving multiple countries [5] - The UK is expanding its fintech influence through partnerships, exemplified by its largest fintech delegation to Bahrain's Fintech Forward 2025 [5] Future Outlook - The convergence of clear regulatory structures and international cooperation is expected to foster institutional adoption and responsible innovation in digital assets by 2026 [6]

Core Viewpoint - Hong Kong is advancing its strategy to establish a comprehensive regulatory framework for virtual assets by introducing new licensing regimes for virtual asset dealers and custodians [1][3]. Regulatory Developments - The proposed regulations will encompass over-the-counter (OTC) desks, brokers, and asset custodians under the same regulatory framework as licensed trading platforms, imposing standards akin to traditional securities firms on dealers and strict requirements for custodians regarding private key management and asset segregation [2]. - A new one-month consultation has been initiated to regulate virtual asset advisory and asset management services, with plans to introduce a legislative bill to the Legislative Council by 2026 [4]. Strategic Implications - This initiative is part of the Securities and Futures Commission's (SFC) "ASPIRe" roadmap, aimed at positioning Hong Kong as a global virtual asset hub [2]. - The establishment of licensing regimes signals to institutional investors that Hong Kong is creating a complete regulatory structure, addressing counterparty risks that have previously hindered significant capital investment [5]. Market Positioning - The regulatory move positions Hong Kong in direct competition with Singapore as Asia's primary digital asset center, contrasting with mainland China's restrictive crypto policies [4]. - The new regulations will facilitate the development of more complex financial products, such as structured derivatives and tokenized securities, by ensuring that all components of the value chain adhere to supervisory standards [6].

Core Insights - South Korea's virtual asset taxation, set to begin in January 2027, may face a fourth postponement due to ongoing infrastructure gaps and unclear regulatory guidelines [1][2] Group 1: Taxation Framework and Delays - The initial approval of the tax law occurred five years ago in 2020, with three previous delays, yet critical systems for transaction monitoring and income classification remain unestablished [2] - A senior researcher has indicated that unresolved deficiencies in the taxation framework raise doubts about the government's ability to implement the tax as promised [2][3] - If the government does not take action during the grace period, trust in the tax system could collapse, and another delay is a possibility given the current conditions [3] Group 2: Infrastructure and Regulatory Gaps - The Income Tax Act mandates a 22% tax on annual gains exceeding 2.5 million won from virtual asset transfers and rentals starting in 2027, but definitions for various income sources are unclear [4] - There is a lack of public-private task forces, and virtual asset taxation is not included in the national tax administration plan, which raises concerns about the readiness for implementation [5] - Taxation standards for transactions outside domestic exchanges, including overseas platforms and decentralized services, remain undefined, leading to potential unfair enforcement [5][6] Group 3: Challenges in Taxation Implementation - The taxation system for rental income is not established, with no clear criteria for determining taxable transactions related to virtual asset lending and staking [6] - The government acknowledges that while large-scale investments can be tracked, small transactions by individual investors are still unmonitored [7] - Proper taxation is believed to be feasible only after an international agreement requiring 48 countries to share virtual asset transaction information is enacted in 2027 [7]

Core Viewpoint - Hong Kong is implementing regulatory changes and a tokenisation pilot scheme to enhance its position as a leading fintech and digital asset hub, aiming to attract more digital asset trading and investment [1][3]. Regulatory Changes - The Securities and Futures Commission (SFC) will allow licensed virtual asset trading platforms (VATP) to share global order books with overseas affiliates, moving away from the previous requirement to keep order books confined to Hong Kong [2]. - VATPs can now distribute virtual assets and Hong Kong-regulated stablecoins with less than a 12-month track record to professional investors, reducing the prior requirement of a minimum one-year track record [3]. Financial Sector Developments - The Hong Kong Monetary Authority (HKMA) is promoting digital transformation and tokenisation through its "Fintech 2030" roadmap, which emphasizes data, artificial intelligence, resilience, and tokenisation [4]. - HKMA plans to advance its sandbox Ensemble to facilitate real-value transactions in tokenised deposits and digital assets, starting with tokenised money market funds [5]. Investment Trends - Total spending on technological investments in Hong Kong is projected to exceed HK$100 billion (approximately $12.9 billion) annually over the next three years, indicating a strong momentum for digital transformation [6]. - The launch of tokenised Hong Kong-dollar and U.S. dollar money market funds reflects a global trend of digital-native capital seeking yield-generating investments [6][7].