Regulatory Fragmentation: The Hidden Cost of Compliance in Digital Assets

As digital assets become increasingly recognized as an institutional asset class, regulatory divergence across APAC is beginning to hinder responsible growth. A prime example is the regulatory landscape in two of its key hubs: Hong Kong and Singapore. Both cities aim to establish themselves as global centers for digital assets, and as a regulated entity in both jurisdictions, Hex Trust is invested in the success of Hong Kong and Singapore. Yet, the two frameworks differ substantially. Rather than viewing these differences as obstacles, we can see them as an early stage of regulatory evolution—one that offers valuable opportunities for dialogue and future alignment.

In contrast, the European Union’s Markets in Crypto-Assets Regulation (MiCA) serves as a beneficial benchmark. MiCA provides a single, harmonized regulatory framework for 27 member states, significantly reducing duplicative licensing costs while still having legal clarity.

Realities of a split regulatory map

Hong Kong and Singapore have each advanced impressive regulatory frameworks for digital assets, but their approaches have evolved along distinct trajectories. Such divergence introduces friction that can impede regional progress in standard-setting and cross-border innovation.

Nevertheless, these very differences present opportunities. Through dialogue and coordination, the two hubs could unlock faster licensing pathways, consistent safeguards, and shared market integrity standards.

Duplicative compliance spend

In Hong Kong, obtaining a VATP (Virtual Asset Trading Platform) license under the AMLO requires legal opinions, external audits, and regulator-specific submissions, including rigorous fit-and-proper tests. In Singapore, the MPI (Major Payment Institution) license under the Payment Services Act includes ongoing obligations like monthly reporting and safeguarding client funds. Running both at the same time greatly increases costs for legal and consulting services. Companies often get delays of 12 to 18 months in getting started. A shared or mutually recognized framework could reduce external spend while maintaining rigorous standards.

Operational inefficiency

The frameworks differ in terms of custody, client money segregation, cold-storage thresholds, trustee oversight of client funds, reconciliation mandates, and the structuring of safeguarding accounts. This means that a firm operating in both Hong Kong and Singapore cannot simply replicate one system but customized systems are required per jurisdiction. That means complexity, manual risk, and higher operational cost.

Talent bottlenecks

Regulatory regimes in both jurisdictions mandate resident senior management. Hong Kong requires “responsible officers” approved by the SFC, while Singapore insists on a resident executive director and senior manager for controlled assets. These demands force duplication of senior, high-cost compliance staff in two of the world’s most expensive labor markets.

Limited interoperability

There are important differences in how assets are classified, what tokens mean (especially stablecoins), the permissions for retail versus institutional users, and the rules around counterparties. Hong Kong is not including stablecoins in its current VATP rules until the Hong Kong Monetary Authority sets up a separate licensing framework. Meanwhile, Singapore has new rules from 2023 that regulate “single-currency stablecoins.” The key friction point is the lack of common definitions for assets like stablecoins, leading to differences in permissible activities for firms operating across both centers..

Structural disadvantage

While the EU’s MiCA regime allows one license to cover multiple markets, APAC still requires separate structures. It is encouraging to see early dialogues among regional regulators, from Hong Kong’s SFC to Singapore’s MAS, pointing toward a growing appetite for cooperation. Mutual recognition can turn today’s division into a competitive advantage for tomorrow.

The data behind the divide

The numbers tell a clear story: APAC is leading the world in digital asset adoption, but without alignment, that growth risks becoming uneven and inefficient.

According to Chainalysis, on-chain activity across APAC jumped 69% year-over-year, reaching $2.36 trillion in transaction volume. The 2025 Independent Reserve Cryptocurrency Index states that Singapore continues to outpace regional peers, with 29% of adults owning crypto and 94% awareness. Meanwhile, Hong Kong’s VATP regime has drawn 24 license applicants, compared to hundreds in Singapore.

The blockchain finance market in the region is worth $187.8 million in 2024 and is expected to grow by 63% each year until 2031. However, this fast growth also brings risks: more than $2.17 billion was stolen from crypto platforms in the first half of 2025. These incidents have, in turn, prompted regulators to tighten oversight and adopt a more cautious approach to licensing.

Why alignment matters

Regulatory alignment, whether via mutual recognition, equivalence, or outright harmonization, can yield several benefits:

• Lower costs of external legal, audit, and licensing work.
• Faster time-to-market, since firms can reuse components of compliance and operations.
• Scalable infrastructure, enabling regional rollouts without re-engineering each jurisdiction’s process.
• Better risk management, as inconsistencies create gaps companies must guard against (legal, financial, reputational).
• Greater appeal to global capital, which often prefers markets with regulatory certainty and scale.

What APAC could learn from MiCA

MiCA became fully operational on December 30, 2024, across all 27 EU member states, with provisions for stablecoins already in force since June 30, 2024. It provides:

• A unified authorization for crypto-asset service providers, so once licensed in one EU country, they can serve clients across all member states without seeking separate national licenses.
• Standardized disclosure, governance, capital/reserve obligations, especially for stablecoin issuers.
• Clearer timelines and transition windows for firms already in operation.

In the APAC region, Singapore and Hong Kong could work together to recognize each other’s standards. This could provide many benefits similar to those of MiCA, but without needing to adopt everything from it.

From fragmentation to alignment: The path forward

Greater alignment, even partial or bilateral, can help businesses comply more easily, lower costs, and encourage innovation across borders. If countries share guidelines on custody, reporting, and licensing, companies can grow in the region while regulators still oversee them nationally. Alignment is not about making everything the same, but about allowing markets to work together without losing their unique qualities.

The way forward lies in regional dialogue and mutual recognition, not in identical rulebooks. A coordinated framework—whether between Hong Kong and Singapore or in a wider APAC group—could minimise duplication, strengthen supervision, and attract deeper institutional participation. If APAC succeeds in building a system that integrates collaboration with local protections, it could emerge as the world’s most dynamic and responsibly regulated digital-asset market.

I’ll be diving deeper into these topics at the WTF Summit 2025 during the panel “Regulatory Challenges in APAC—How Businesses Adapt.” Together with industry peers, I’ll be discussing strategies for operating across fragmented jurisdictions, balancing compliance with growth, and anticipating what’s next in APAC’s regulatory evolution. The Summit, held this November in Singapore, is an opportunity for the industry to exchange real-world insights and shape the next chapter of responsible digital finance in the region.