Hong Kong’s local government has launched a consultation on the jurisdiction’s regulatory proposals for over-the-counter trading of virtual assets.
The public consultation, launched on Thursday, concerns regulatory proposals for implementing a licensing regime for providers of OTC trading services for virtual assets. The consultation will last until April 12, 2024.
“The legislative proposals constitute an important element in the Government’s efforts to develop a robust and transparent regulatory environment for the sustainable development of virtual assets and Web3. The proposed licensing regime for virtual asset over-the-counter service providers will effectively mitigate the ML/TF risks of the virtual asset activities concerned and cater for investor protection,” a Hong Kong government spokesman said.
The legislative proposals
The key points of the legislative proposals include mandating licensing by Hong Kong’s Commissioner of Customs and Excise for any person conducting a business that provides services for the spot trade of any virtual asset for money in Hong Kong.
The proposals encompass all virtual asset over-the-counter services, regardless of whether these services are offered through a physical outlet or other platforms.
The regulatory framework also proposes to grant powers to the CCE to supervise the anti-money laundering and counter-terrorist financing conduct of virtual asset licensees, along with enforcing statutory and regulatory requirements under the new regime.
Fraudulent OTC activity detected
Last week, Hong Kong’s Secretary for Financial Services and the Treasury, Christopher Hui, wrote in a blog post that OTC venues are easily accessible to the general public, and some were found to be involved in fraud cases.
“OTC venues have played a certain role in some of the fraud cases involving some unlicensed VA trading platforms last year, having misled investors to channel funds to these unlicensed platforms,” Hui said. “Therefore, we believe that it is necessary to bring OTC venues under regulation, and we will launch a consultation very soon on the proposed regulatory framework.”
In June 2023, Hong Kong officially started its crypto licensing regime for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services. Hong Kong has so far granted such licenses to two platforms — namely HashKey and OSL.
The regulators have given a transitional period for those already operating in Hong Kong before the licensing system came into effect that requires them to submit their license applications by Feb. 29.
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