The Two-Speed Race: Travel Rule Compliance and Fiat Access in APAC Crypto Hubs

The Asia-Pacific (APAC) region, anchored by financial giants like Australia, Hong Kong (HK), Singapore, and the UAE, is aggressively positioning itself as a leader in regulated digital assets. By quickly implementing the Financial Action Task Force (FATF)'s Crypto Travel Rule, these jurisdictions have demanded world-class Anti-Money Laundering (AML) compliance from providers in the virtual assets industry.

However, this rush to regulate has exposed a profound operational imbalance: While VASPs are forced to meet complex, capital-intensive compliance burdens for digital asset transfers, they are simultaneously being sidelined by traditional banks, hindering their ability to conduct simple, routine fiat payments. This creates a two-speed system where crypto firms are strictly compliant but functionally restricted.

The Digital Asset Travel Rule in APAC: Leading the Compliance Charge

Australia, Hong Kong, Singapore, and the UAE have adopted the Travel Rule, which mandates that VASPs collect and transmit specific originator (sender) and beneficiary (recipient) customer information for qualifying virtual asset transfers. These deadlines place APAC firms at the forefront of global compliance.

The above reflects publicly available regulatory positions as at December 2025 and is subject to change.

The VASP Burden: Cost and Friction

The stringent compliance dates force VASPs in these hubs to overcome two primary technical challenges:

1. The "Sunrise Issue": Given the staggered global adoption, APAC VASPs must have technical solutions (often involving protocols like TRISA or OpenVASP) to securely exchange data with compliant counterparties while managing the risk of non-compliant ones, often leading to blocked or restricted transfers.

2. Unhosted Wallet Verification: Regulators, particularly the SFC in HK and AUSTRAC in Australia (from March 2026), demand that VASPs verify the identity and control of customers sending funds to or from private, self-hosted wallets. This requires complex, costly proof-of-control technologies, adding a regulatory layer of complexity far exceeding that of a standard bank wire.

The Fundamental Asymmetry: Banks vs. Regulated Crypto Firms

The paradox lies in the operational gulf between traditional financial institutions (TradFi) and licensed VASPs. The question is not about the rules, but about the infrastructure access: Why can a large APAC bank easily pay a third-party vendor or refund a customer globally via fiat, while a MAS-licensed or VARA-regulated VASP is routinely restricted from doing the same?

1. Bank De-Risking is the Primary Barrier

A commonly cited impediment is the pervasive global practice of de-risking—a policy where major correspondent banks refuse or severely restrict services to the entire crypto sector, regardless of a VASP's licensed status.

• TradFi's Privileged Position: Banks have direct, regulated access to national payment clearing systems (e.g., Australia's NPP, Singapore's FAST). A bank wire is a trusted transaction within a known regulatory ecosystem.

• VASP's Exclusion: Even with high-grade VASP licenses from respected regulators like the MAS or SFC, crypto firms are almost universally denied direct access to these payment systems. They must operate through an intermediary partner bank.

• The Killer Restriction: Industry participants commonly note that due to their internal "high-risk" classification of crypto, these partner banks impose restrictive conditions: they prohibit the VASP from making third-party fiat payments. The VASP is often only allowed to send fiat back to the exact bank account from which the fiat originated (a first-party transfer). This ban on third-party fiat payments effectively cripples essential business operations such as:

  • Paying employees, suppliers, or affiliates.

  • Processing mass customer refunds or insurance payouts to varying bank accounts.

2. The License vs. Operational Privilege Gap

In these APAC hubs, a VASP license proves regulatory compliance (AML/CFT, Travel Rule readiness), but it does not confer the same operational privileges as a traditional banking license.

• HK and UAE's Dilemma: Regulators in Hong Kong and the UAE are trying to create a legitimate, regulated crypto hub. However, their success is held hostage by the reluctance of global correspondent banks to trust the VASP license. If a VARA-licensed exchange cannot efficiently move fiat in and out of the jurisdiction to conduct its licensed business, the regulatory framework, no matter how sound, risk being undermined in practice.

Conclusion and the Path Forward

The Travel Rule has successfully pushed the APAC VASP sector to mature into a highly regulated industry. Yet, this achievement is incomplete as long as the sector is starved of basic fiat banking access. The ultimate barrier to seamless financial integration is not a technical crypto problem, but an institutional TradFi problem rooted in risk aversion and a monopoly over essential payment infrastructure.

Navigating this complex regulatory environment requires expertise that bridges the gap between digital asset innovation and stringent compliance. Firms like VCM have a responsibility to remain abreast of this necessary integration, focusing on the implementation of regulated Travel Rule compliance and maintaining up-to-date checks on VASP development across key APAC jurisdictions. Their work underscores that for the crypto industry to fully realize its potential in these financial hubs, the regulatory framework must evolve beyond mere compliance requirements to support operational parity with the traditional financial system.

ABOUT THE AUTHOR – WIL 

Wil is a global investment leader with over two decades of executive experience across top-tier financial institutions including HSBC, Citibank, Deutsche Bank, Sparx Group (Japan), Maybank (Malaysia), and Westpac Bank (Australia). Having led teams in Hong Kong, Seoul, Shanghai, Singapore, Sydney, and Melbourne, he brings unparalleled cross-border expertise in global macro strategy, emerging markets, and digital asset innovation. A licensed professional (HKSFC, MAS, AFMA), Wil has consistently delivered strong institutional performance across traditional and alternative asset classes while navigating complex regulatory landscapes.

As General Manager of Vector Capital Management, Wil leverages his institutional pedigree to transform private wealth management, implementing professionalised investment frameworks typically reserved for large financial institutions. His approach bridges the gap between sophisticated family office needs and institutional-grade portfolio strategies.

Wil combines hands-on financial leadership with academic rigor - currently completing his PhD research on fiscal/monetary policy impacts while holding advanced degrees in Investment Management and Economics. As a guest lecturer and university advisor, he shapes the next generation of finance professionals, blending cutting-edge theory with real-world market experience. This unique intersection of practice and scholarship establishes Wil as a thought leader in global finance.

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