According to Hex Trust CEO Alessio Quaglini, Hong Kong adapts existing securities laws to digital asset infrastructure, whereas Singapore creates something new from the ground up.
Hong Kong and Singapore are two Asian financial hubs that are frequently compared due to their similar market-friendly regulatory environments.
However, when it comes to digital assets, the comparison is only superficial. In fact, according to Alessio Quaglini, CEO of Hex Trust, a Hong Kong-based crypto custodian, in an interview with ULTCOIN365, the two cities take vastly different approaches to regulating this nascent industry.
“The two cities have different approaches to securities, but they are quite similar in their approach. They’ve created frameworks that are essentially an extension of traditional securities frameworks, but apply specifically to the complexities that blockchain assets can bring to the table,” Quaglini explained.
Hex Trust recently expanded its operations to Singapore, where it was granted a license to provide custodial services under the Securities and Futures Act of the City State. The company is based in Hong Kong and opened its doors around the time the Securities and Futures Commission established its initial regulatory framework for digital asset custodians.
The difference in regulatory approaches between Hong Kong and Singapore begins with how the two cities define digital assets — in Hong Kong, they are referred to as Virtual Assets, whereas in Singapore, they are referred to as Payment Tokens — and thus the regulators who would oversee the market.
The Hong Kong Monetary Authority, the city’s central bank, determines whether or not the digital asset is considered money; the Securities and Futures Commission (SFC), Hong Kong’s market regulator, makes rules about the trading of digital assets; and the Registrar of Companies oversees Trusts that hoard digital assets.
“Hong Kong has done little to establish a clear framework, but has only provided guidance for exchanges,” Quaglini said. Virtual asset exchanges, as Quaglini explained in a previous interview with ULTCOIN365, are licensed under securities law as either a Type 1, securities dealer, or a Type 7, automated trading service provider.
Singapore, on the other hand, has established a separate framework under the Monetary Authority of Singapore (MAS) — the country’s hybrid central bank and financial regulator — that “specifically addresses the issues, complexities, and licensing requirements of companies that want to set up a business dedicated to virtual assets,” according to Quaglini.
Under the Payment Services Act, MAS licenses exchanges as Digital Payment Token (DPT) Service Providers (PSA). Custodians are also subject to MAS under the Securities and Futures Act.
“So far, they have patched things on through the traditional securities framework in Hong Kong, whereas Singapore has a completely different framework,” he explained.
To be sure, Hong Kong is undergoing a change in this regard. The City’s authorities are currently consulting on the implementation of new laws. One of the proposed new laws, according to a white paper being circulated among stakeholders, would limit cryptocurrency services to professional investors only.
The Crypto Push in Singapore
All of this begs the question of why Singapore’s approach to digital assets differs so greatly from Hong Kong’s.
According to Quaglini, it all boils down to Singapore’s position as a financial hub, with connectivity between Southeast Asia, India, and the West, as well as the AAA-rated supply chain of professional services businesses. Among all of this is the next generation of financial companies being incubated by Singapore’s vibrant startup scene, which Hong Kong lacks. This has served the trading sector well, and the digital asset sector requires something similar.
There’s also DBS, the 800-pound gorilla. DBS launched a digital assets trading desk aimed at institutional investors earlier this year. Although the volume is small in comparison to competitors such as LMAX Digital, this is changing.
“It’s great to have a bank behind it, and it’s great to have their branding behind it. However, I believe that at this point in the digital asset business, this is secondary. People are more interested in the actual quality of services offered as well as the breadth of services,” he says.
Traders are accustomed to trading dozens of different blockchain protocols and settling transactions instantly, according to Quaglini.
“They also expect service providers to be available 24 hours a day, seven days a week. This isn’t really consistent with a bank’s operating model,” he continued. “That doesn’t mean DBS won’t be able to pull it off, but it will take some time.”
Regardless, the fact that DBS is running this digital asset desk in the first place is more important, given that the bank is partly owned by the government’s sovereign wealth fund Temasek Holdings. According to Quaglini, this is an indication that the government is “really fostering and supporting the development of this type of new initiative.” It is also worth noting that Temasek’s more conservative blue-chip peer GIC is a significant investor in digital asset bank Anchorage.
“By contrast, in Hong Kong, no crypto business has been able to obtain a local bank account,” Quaglini said.