Hong Kong Regulator Explores Tokenization to Transform Bond Market

South Korea’s financial regulator outlined plans on Jan. 28 to transition crypto exchanges from a registration system to a licensing regime to boost capital market appeal, Financial News reported. Financial Services Commission (FSC) Chairman Lee Eok-won stated that the proposed licensing framework—part of the Digital Asset Basic Act—would grant exchanges ongoing authorization while assigning them broader responsibilities.Photo by Tara Winstead님 on PexelsRuling party plans Lunar New Year crypto bill filingThe FSC has recommended capping individual ownership stakes in exchanges at 15–20% to prevent ownership concentration, a view broadly supported by the ruling Democratic Party’s Digital Asset Task Force, according to Edaily. However, party officials noted that internal disagreements remain over whether to include these limits directly in the bill, which they aim to submit before the Lunar New Year holiday next month. Progress on the legislation faces hurdles regarding stablecoins. The Democratic Party has presented a mediation proposal, but the Bank of Korea and the FSC remain at odds. The central bank argues that stablecoin issuance rights should be restricted to consortia where banks hold a majority stake of at least 51%. The regulatory push coincides with a surge in crypto participation. Data from the Financial Supervisory Service (FSS)—cited by People Power Party lawmaker Lee Heon-seung and reported by the Asia Business Daily—shows the number of won-based traders rose about 70% over the past three years. Users on the five major exchanges (Upbit, Bithumb, Coinone, Gopax, and Korbit) reached 9.91 million last year, up from 5.82 million in 2023. Despite the growing user base, trading volumes have been volatile. Volumes surged to 2,411 trillion won ($1.8 trillion) in 2024 from 1,122 trillion won ($801.6 billion) in 2023, before easing to 2,140 trillion won ($1.6 trillion) last year amid a market slowdown. Tax rulings and crime cases test crypto oversightAs regulations tighten, courts are clarifying tax treatments. According to the news outlet Digital Asset, a court recently upheld the National Tax Service’s decision to tax digital assets received through promotional events. The court rejected a claimant’s request for an 80% tax deduction, dismissing the argument that the promotion was a competition determined by participant rankings. The ruling clarified that the giveaways did not meet the legal definition of a competition eligible for such tax benefits under the Income Tax Act. Authorities are also grappling with crypto-related crime. According to another Edaily report, the Gwangju District Prosecutors' Office has launched a probe into five investigators after 320 seized Bitcoin was stolen from a phishing site during a handover of duties in August. Prosecutors have denied internal collusion. Separately, MBC News reported that Seoul police are investigating two teenagers accused of luring a buyer to a face-to-face trade in Gangnam on Jan. 27 and fleeing with 28 million won ($21,000). 

Japan’s Financial Services Agency (FSA) has moved recently to address concerns related to peer-to-peer (P2P) transactions while in a separate development, the country’s GameFi community is calling for regulatory change to enable greater liquidity. The two distinct developments both relate to getting the balance right in terms of crypto regulation from the perspectives of regulators and lawmakers and crypto sector entrepreneurs and participants.Photo by Manuel Cosentino on UnsplashAddressing concernsIt emerged last week that the FSA had proposed a number of measures to safeguard users against “unlawful transactions,” causing alarm that any such moves would inhibit the P2P transactions market. Responding to a query from Cointelegraph, the FSA elaborated that its recommendation does not encompass "transactions from one individual to another." Instead, it aims to bolster measures against illicit money transfers, particularly instances where an individual deposits cash from their bank account into an account belonging to a crypto asset exchange service provider. The regulator clarified that under the new recommendations, banks would intercept suspicious transactions where the sender seeks to alter their name for the purpose of depositing funds into the crypto platform. The FSA outlined that this situation arises where a fraudster convinces an innocent exchange user to effect the name change, so that exchange rules can be circumvented and the fraudster can receive funds from the scam victim. According to the FSA, numerous financial institutions have already implemented these measures, although the agency has not received any reports of specific cases raising concerns regarding crypto asset markets. Notably, the FSA emphasizes that its recommendations are not universally mandated for all financial institutions, with banks expected to devise and implement measures tailored to their specific circumstances. Solving crypto market liquidity issuesWith that clarification, it appears that the measures won’t have the negative impact on P2P crypto markets as many market participants originally feared. Meanwhile, in a distinct development, Japan's blockchain gaming community has approached the Liberal Democratic Party (LDP) to seek assistance in bolstering liquidity within Japan's crypto asset market. Taking to the X social media platform on Wednesday, Ryo Matsubara, director of Oasys, a GameFi blockchain, outlined that he had visited the LDP's digital society promotion headquarters on behalf of Japanese blockchain gaming projects to raise concerns about stringent regulations impeding liquidity in Japan, which directly impedes the growth of the GameFi ecosystem. Matsubara advocates for regulations that incentivize safe cryptocurrency investment, positing that increased liquidity, marked by a surge in buyers and sellers, could result from such measures. Oasys intends to continue collaborating with the government to enhance Japan's global competitiveness in the Web3 market, with Matsubara expressing confidence in Japan's potential to reclaim its illustrious gaming legacy on Web3. While Japan initially harbored skepticism toward crypto adoption, its stance has softened in recent times. Matsubara acknowledged the positive impact of a recent crypto-related tax reform which was enacted in December. In September 2023, the Japanese government commenced planning to permit startups to raise public funds through crypto asset issuance. That bill was approved last week and now goes forward to the Japanese parliament for further deliberation. These recent developments demonstrate that Japan is navigating regulatory complexities as it seeks to balance innovation with consumer protection in the burgeoning crypto space.

Korea and Japan Collaborate to Develop Accounting Standards for Virtual AssetsThe Korea Accounting Institute (KAI) announced today that it held a bilateral meeting yesterday with the Japanese Financial Accounting Standards Foundation (FASF) to discuss devising accounting standards for virtual assets. Among the attendees were high-level officials of the FASF, including Yasunobu Kawanishi, Chair of the Accounting Standards Board of Japan.Photo by Shubham’s Web3 on UnsplashConsensus on establishing standardsBoth parties agreed on the importance of establishing accounting standards for virtual assets. These standards should be practical and easy to follow, ensuring that they offer sufficient information to readers of financial statements.Reciprocal sharing of progressKAI is in the process of revising the Korean version of the International Financial Reporting Standards (K-IFRS) to require companies to disclose information related to virtual assets within the annotations of their financial statements. This mandatory disclosure of virtual asset-related details was announced by the Korean Financial Services Commission last month, with implementation scheduled for January of next year. This significant update was a topic of discussion in the meeting. Similarly, the FASF reciprocated by sharing its own progress and advancements.This meeting was arranged in light of the deepening relations between the two nations. The close collaboration between the two groups is poised to give Korea momentum to broaden its global presence. Moving forward, the accounting bodies of both countries are committed to continuing their cooperative efforts.