Hong Kong is contemplating the idea of entrusting its securities regulatory body with overseeing over-the-counter (OTC) cryptocurrency trading services in partnership with the Customs and Excise Department (C&ED).
The South China Morning Post recently disclosed that the Securities and Futures Commission (SFC) has been actively seeking input from industry participants regarding a novel licensing structure for crypto OTC services. Consequently, the SFC and the C&ED may potentially share supervision responsibilities over these entities.
crypto-traders-to-obtain-licenses-and-meet-aml-standards">Hong Kong Proposal Requires OTC crypto Traders to Obtain Licenses and Meet AML Standards
This development follows Hong Kong's initiation of a consultation process surrounding the regulation of OTC crypto trading earlier this year in February. The primary objective of this consultation was to establish a licensing framework for virtual asset OTC services. Under this proposition, operators would be mandated to acquire licenses and comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.
The proposal delineated that individuals engaged in virtual asset trading within Hong Kong must acquire a license from the Commissioner of Customs and Excise (CCE). Notably, Virtual Asset Trading Platforms are excluded as they are already subject to regulation by the SFC. This recent development broadens the SFC's regulatory purview to encompass this specific sector.
As of the time of reporting, the SFC had not responded to Cryptonews' request for commentary.
crypto-influx-driven-by-strong-otc-market">Hong Kong’s $64B crypto Influx Driven by Strong OTC Market
The thriving crypto OTC market in Hong Kong facilitates substantial trades directly between parties, often bypassing traditional exchanges. According to Chainalysis, Hong Kong experienced a hefty $64 billion influx in crypto between July 2022 and June 2023. A significant portion of this inflow can be attributed to the city's robust OTC market.
The government's heightened focus on regulating OTC services, particularly in the aftermath of incidents like the JPEX scandal, underlines its commitment to establishing a legitimate marketplace. This focal point could potentially draw more investment into Hong Kong's crypto sector, potentially spurring growth in the OTC market.
In addition to these regulatory measures, the SFC is engaged in dialogs with enterprises regarding the introduction of a fresh licensing framework for cryptocurrency custodian services. Reports suggest that these conversations are still at a nascent stage.
