Hong Kong Aims for New OTC Crypto Services Regulations

If the new regime takes effect, the SFC will collaborate with the C&ED to oversee OTC services in Hong Kong.

Financial hub Hong Kong looks to introduce a new regime for over-the-counter (OTC) virtual asset trading services as the Securities and Futures Commission (SFC) conversed with multiple ‘industry participants.’ Should the jurisdiction proceed in that direction, the SFC will work with the Customs and Excise Department (C&ED) to better regulate the crypto industry.

A proposal from February suggested that the C&ED would solely oversee the OTC virtual asset vertical. However, industry stakeholders mentioned that giving the C&ED charge of OTC services is proving puzzling as the SFC deals with most things crypto. As the SFC looks to enter the OTC space, it is also conversing with crypto companies about introducing regulations and licensure for custody services.

The details come from unnamed sources talking to the South China Morning Post. “To foster the sustainable and responsible development of the virtual assets industry in Hong Kong, the SFC works closely with the government and other regulators in developing a robust, clear and consistent regulatory environment in Hong Kong,” they told the news outlet.

Hong Kong’s plans to regulate OTC shops came after the $225 million JPEX crypto exchange fraud. Investigations revealed that OTC services played a role in pumping funds from retail investors into fraudulent schemes like JPEX.

SFC Taking the Strict Approach With Exchanges Applying for Registration

As Hong Kong, a leading financial hub, also positions itself to become the top crypto hub, the SFC warned crypto exchanges applying for licenses to improve their risk management and know-your-customer (KYC) processes. 11 exchanges have applied for registration. Presently, only two exchanges operate legally in the jurisdiction—Hashkey and OSL. The SFC also released a list of unlicensed exchanges to alert investors from falling prey to scams. It had previously banned unlicensed entities from offering crypto exchange and trading services.