In a bid to tighten oversight on digital asset transactions, Hong Kong authorities are set to extend regulatory measures to cover over-the-counter (OTC) crypto trading, aligning it with rules governing retail digital asset trading. The move, outlined in the “Public Consultation on Legislative Proposals to Regulate Over-the-Counter Trading of Virtual Assets,” published on February 8, signals a significant shift in the regulatory landscape. Stakeholders have until April 12 to weigh in on the proposed changes.
Key among the proposals is the inclusion of OTC trades within the purview of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), slated to take effect from June 2023. OTC transactions typically involve direct dealings between parties, bypassing traditional exchanges. The scope of OTC trading, as outlined in the consultation paper, encompasses spot trades of virtual assets for fiat currency. However, peer-to-peer transactions will remain outside the ambit of OTC regulations.
Hong Kong currently hosts around 200 physical OTC outlets, including ATMs, and approximately 250 digital platforms facilitating the buying and selling of virtual asset services. Under the proposed regulations, OTC traders would be subject to licensing requirements akin to those imposed on other virtual asset service providers. This entails obtaining a license from the Commissioner of Customs and Excise, alongside providing detailed information such as local management office addresses and records storage locations.
Furthermore, licensees would be restricted to transferring assets solely between registered wallets and client accounts, with clients mandated to furnish proof of wallet ownership and control. The proposed rules also restrict OTC traders from dealing in virtual assets not listed on licensed retail virtual asset trading platforms or stablecoins issued by unlicensed entities. The regulatory push comes amid broader efforts by the Hong Kong government to clamp down on unlicensed virtual asset service providers.
Financial services authorities have set a deadline for unlicensed VASP applications, warning that those failing to obtain approval must cease operations by May 31. As Hong Kong navigates the evolving landscape of digital asset regulation, stakeholders await the outcome of the consultation period, poised to shape the future of crypto trading within the jurisdiction.