Digital asset regulation across Asia has entered a new phase. Hong Kong has implemented a licensing regime for virtual asset trading platforms and is proactively proposing new legislation for digital asset custody and stablecoins. Singapore continues to tighten expectations under its digital payment token framework. South Korea now requires certain virtual asset service providers to maintain reserves or insurance to protect customer assets.
For founders, this is progress. Clear rules create legitimacy and attract institutional capital.
But as regulatory frameworks mature, another reality becomes unavoidable. Regulation does not only define how a digital asset business must operate. It defines the benchmark against which leadership will be judged when losses occur.
That is where regulatory oversight turns into liability exposure.
The JPEX Example: From Licensing Issue to Investor Fallout
The JPEX case in Hong Kong illustrates how quickly this shift can happen.
In 2023, the Securities and Futures Commission issued a public warning that JPEX was not licensed under Hong Kong’s virtual asset regime. Shortly afterwards, the Hong Kong Police Force launched a major investigation following investor complaints. Reported losses exceeded HKD 1 billion.
Initially, the issue centred on licensing status. It then evolved into allegations relating to marketing representations, withdrawal restrictions and the safeguarding of client assets. Arrests followed. Assets were frozen. Civil claims and recovery efforts developed alongside the regulatory process.
The regulatory question was whether the platform complied with Hong Kong’s framework.
The liability question was who bore responsibility for investor losses.
Those are not the same inquiry.
Where Exposure Commonly Arises
Across Asia’s digital asset regimes, three areas consistently create pressure points.
Custody and segregation.
Regulators now require clearer separation of client assets and stronger safeguarding controls. If access to assets is disrupted or internal controls fail, the issue quickly moves beyond regulatory breach and into allegations of inadequate oversight by directors.
Disclosure and marketing.
Digital asset businesses often promote security, institutional-grade infrastructure or robust risk management. If those representations are later challenged, investors may argue that they relied on misleading statements, even if no formal regulatory breach is established.
Governance and fit and proper standards.
As regulators assess the competence and integrity of key individuals, personal accountability becomes embedded in the framework itself. When incidents occur, board minutes, internal controls and decision-making processes are examined in detail. Directors are frequently named personally in proceedings.
In each case, compliance may be reviewed by regulators, but financial responsibility is pursued through civil channels.
The Financial Reality Behind Enforcement
Even if allegations are defensible, responding to investigations and claims is expensive. Legal representation, cross-border coordination and forensic reviews can run for months or years. For digital asset founders who built technology platforms rather than regulated financial institutions, this layer of exposure is often underestimated.
Regulation establishes standards. It does not fund defence costs or protect personal assets.
How Insurance Actually Responds in These Scenarios
When a digital asset firm faces regulatory scrutiny and investor claims at the same time, different insurance products respond to different parts of the exposure.
1. Directors & Officers Liability Insurance (D&O)
If directors or senior management are named in civil proceedings or regulatory investigations alleging wrongful acts in their managerial capacity, D&O typically responds to:
-
Defence costs for regulatory investigations
-
Legal expenses in civil claims alleging mismanagement or breach of duty
-
Settlements or judgments where insurable
In cases similar to the JPEX investigation, where enforcement action and investor recovery efforts develop simultaneously, D&O becomes critical because individuals are often named personally.
2. Professional Indemnity (Errors & Omissions)
Where claims arise from alleged misrepresentation, inadequate disclosure, or failures in services provided such as custody, staking, or tokenisation, Professional Indemnity cover may respond.
This is particularly relevant where investors argue that they relied on marketing statements or risk disclosures that did not accurately reflect operational risk.
3. Crime and Custody-Related Cover
If losses arise from internal fraud, asset misappropriation or certain operational failures involving client assets, Crime or custody-related policies may be triggered, depending on structure and wording.
Each policy addresses a different part of the financial consequence. Regulation creates the standard. Insurance determines how the financial impact is absorbed.
How Continuum Supports Digital Asset Firms
At Continuum, we advise financial institutions including exchanges, custodians, funds and technology platforms operating across Asia’s evolving regulatory landscape. Our focus is on identifying where regulatory obligations translate into liability exposure and structuring Directors and Officers, Professional Indemnity and related cover accordingly.
We work alongside management teams to ensure that insurance programmes reflect real enforcement trends and investor behaviour, not just theoretical risk.
If you are reassessing your risk framework in light of tightening digital asset regulation in Hong Kong, Singapore or elsewhere in Asia, we would be pleased to discuss how your current arrangements respond to both regulatory scrutiny and civil liability exposure.
