The Hong Kong government has launched a public consultation as it looks to regulate over-the-counter (OTC) virtual asset trading.
Under the new rules, anyone caught operating a virtual asset exchange store without a license would face two years in prison and a fine of HK$1 million (US$127,873).
Hong Kong Launches Consultation On Regulatory Proposals
The public consultation was launched on Thursday and dealt with regulatory proposals that look to implement a licensing regime for the providers of OTC trading services for virtual assets. The consultations will continue until the 12th of April, 2024. A government spokesperson stated,
“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.”
Key Points
The legislative proposal includes critical points such as mandating licensing by Hong Kong’s Commissioner of Customs and Excise for any person who is conducting a business providing services that facilitate the spot trade of any virtual asset for money in Hong Kong and areas falling under its jurisdiction. The proposals encompass virtually all over-the-counter services, regardless of whether the services are offered online or other platforms or through a physical outlet.
The proposal also proposes granting powers to the CCE to supervise the anti-money laundering and counter-terrorist financing conduct of virtual asset licensees. It also proposes allowing the CCE to enforce statutory and regulatory requirements under the new regime. Lawmakers stated that while virtual asset trading platforms worked similarly to stock exchanges, OTC services were similar to money changers.
“Nowadays, we don’t have any regulations for those OTC exchange shops, so anybody can open a shop anywhere in Hong Kong.”
OTCs Involved In Fraudulent Activities
Hong Kong’s Secretary for Financial Services and the Treasury recently revealed in a blog post that some OTC venues were found to be engaged in fraudulent activities, highlighting fraudulent schemes such as the JPEX scandal.
“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. 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.”
The JPEX scandal became Hong Kong’s largest fraud case, with users losing HK$1.61 billion in connection with the platform.
“Under such circumstances, the government sees a need to bring [virtual asset] OTC services within the statutory regulatory remit through legislative amendments, with a view to ensuring that the ‘same activity, same risks, same regulation’ principle is observed and sufficient investor protection is provided for.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
Source: https://cryptodaily.co.uk/2024/02/hong-kong-plans-to-regulate-otc-virtual-asset-trading