China's Ministry of State Security declared on September 28 that cryptocurrency is not a legal safe haven for criminals and that its supposed anonymity is a misconception, in a warning that coincided with new regulatory coordination in Hong Kong and a policy review in South Korea.

The MSS, China's principal civilian intelligence agency, said blockchain's transparency and immutable on-chain data mean transaction records are preserved and traceable throughout the entire transaction process. Although cryptocurrencies display wallet addresses instead of names, the agency said this anonymity is limited and does not guarantee identity protection.

What did the MSS actually say?

The ministry outlined several operational risks it attributes to cryptocurrency use:

• Money laundering, where criminals split illicit proceeds from telecom fraud, online gambling and cross-border smuggling into smaller transactions routed through crypto.
• Circumvention of financial controls, complicating national foreign exchange management.
• Use of crypto as a shield by cybercriminals, including foreign intelligence agencies funding espionage, concealing illicit payments or demanding ransoms.

The MSS said transactions are documented on public distributed ledgers regardless of amount, timing or location, and records cannot be erased or modified. Specialized organizations can combine on-chain analysis with big data techniques to link wallet addresses to real-world users and trace fund movements, the ministry added.

The agency also flagged an operational point for holders: privately held keys have no recovery mechanism, meaning lost, leaked or stolen keys can result in permanent loss of control over assets. Users who entrust keys to a trading platform for custody may recover account passwords through appeals, but face risks such as platform bankruptcy or the platform becoming unreachable.

What does Hong Kong's new MoU cover?

On September 28, Hong Kong's Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC) signed a Memorandum of Understanding extending financial and compliance reporting oversight to SFC-licensed virtual asset service providers (VASPs), SFC-authorized funds and registered open-ended fund companies.

The agreement, which supersedes a 2021 MoU signed with the former Financial Reporting Council, covers information sharing, case referrals, mutual assistance, and coordinated inspections and investigations of mutual regulatory interest. It also extends to related audit and assurance work.

"This MoU reinforces our shared commitment to reliable financial reporting and high-quality audits," said SFC Chairman Dr. Kelvin Wong. He said closer collaboration with the AFRC across a broader range of entities would strengthen market integrity and consolidate Hong Kong's standing as a trusted international financial centre.

SFC Chief Executive Julia Leung said the agreement ensures supervision evolves with market dynamics. "Deepening our regulatory cooperation across financial sub-sectors is essential to upholding the quality of financial reporting and bolstering the confidence of global investors in Hong Kong's regulatory system," Leung said. AFRC Chairman Dr. David Sun said the framework reinforces efforts to protect the public interest and maintain the financial market's resilience and long-term competitiveness.

For licensed VASPs, the practical consequence is dual-regulator visibility: audit and reporting failures that once fell to a single agency can now trigger coordinated referrals and joint inspections.

Why is South Korea reviewing market making?

South Korea's Financial Services Commission (FSC) is reviewing whether to introduce a formal market-making system for digital assets after JPYC surged on its September 17 listing on Upbit. The token opened at 12 Korean won ($0.0088) and peaked at 37.6 won ($0.028) an hour later — more than four times its estimated yen-linked market value — drawing criticism over user losses tied to the post-listing spike.

FSC Director of digital finance policy Yoo Young-joon said the agency would examine the issue at a Seoul conference. "We will also review the need to introduce systems such as market-making activities to increase the efficiency and stability of the digital asset landscape," Yoo said, adding that "demands for discipline in this area are expanding."

The review targets a structural gap. South Korea's Virtual Asset User Protection Act contains no exemption for market making from its market-manipulation provisions, a rule that bars firms from providing continuous two-sided liquidity in the way automated market makers operate on other venues. A 2024 Seoul Law Review paper by KB Securities researcher Lee Min Jung argued regulators had disallowed crypto market making over manipulation concerns but suggested a carve-out once the market matured. A separate paper by Yoonyoung Choi linked the absence of a formal market-maker system to liquidity problems, citing the Kimchi premium as evidence of structural inefficiency.

Any FSC proposal to amend the Virtual Asset User Protection Act would require legislative follow-through, meaning a market-making carve-out, if pursued, would move on a parliamentary timeline rather than a regulatory one.