Summary
Hong Kong’s government has launched a public consultation on regulatory proposals for over-the-counter (OTC) trading of virtual assets. The consultation aims to implement a licensing regime for providers of OTC trading services for virtual assets. The proposed legislation would require licensing by Hong Kong’s Commissioner of Customs and Excise for any person conducting a business that provides services for the spot trade of virtual assets for money in Hong Kong. The regulatory framework also includes measures to supervise anti-money laundering and counter-terrorist financing conduct of virtual asset licensees. The move comes after fraudulent OTC activity was detected, and the government believes it is necessary to bring OTC venues under regulation. Hong Kong officially started its crypto licensing regime for virtual asset trading platforms in June 2023, and two platforms have been granted licenses so far.
Key Points
1. Hong Kong’s local government has launched a consultation on regulatory proposals for over-the-counter trading of virtual assets. The consultation will last until April 12, 2024. The proposed licensing regime aims to develop a robust and transparent regulatory environment for the sustainable development of virtual assets and Web3, while mitigating money laundering and terrorist financing risks and ensuring investor protection.
2. The legislative proposals mandate 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 licensing requirements apply to all virtual asset over-the-counter services, regardless of the platform used. The regulatory framework also grants powers to the CCE to supervise anti-money laundering and counter-terrorist financing conduct of virtual asset licensees and enforce statutory and regulatory requirements under the new regime.
3. The decision to regulate over-the-counter venues for virtual asset trading comes after fraudulent activities were detected in some unlicensed virtual asset platforms. Hong Kong aims to bring OTC venues under regulation to prevent fraud cases and protect investors. The country has already implemented a licensing regime for virtual asset trading platforms, with two platforms receiving licenses so far. Existing operators have been given a transitional period to submit their license applications.