Hong Kong is set to release a consultation on a proposed regulatory framework for over-the-counter (OTC) crypto trading platforms in the near future, as stated in a blog post on February 2.
Christopher Hui, the Secretary for Financial Services and the Treasury, cautioned the public about the potential risks associated with OTC venues, emphasizing their accessibility and involvement in fraudulent activities.
Hong Kong’s Majority Crypto Fraud Cases Caused by OTC Platforms
Christopher Hui noted that OTC venues played a role in certain fraud cases involving unlicensed virtual asset (VA) trading platforms in the previous year, where investors were misled into channeling funds to these unlicensed platforms. As a result, he emphasized the necessity of regulating OTC venues and announced the imminent launch of a consultation for a proposed regulatory framework.
In June 2023, Hong Kong introduced its licensing framework for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services. So far, HashKey and OSL are the two platforms that have obtained licenses under this regime.
For virtual asset service providers already operating in Hong Kong before the licensing system’s implementation, the government provided a transition period, requiring them to submit license applications by February 29. The Securities and Futures Commission (SFC) will assess whether these applicants meet regulatory requirements and had substantial operations in Hong Kong before the licensing system’s commencement.
Depending on the SFC’s evaluation, existing service providers may be considered as licensed from June 1 of the same year until a final decision is made on their license applications. Hui also cautioned that as the deadline approaches, the SFC will increase its enforcement efforts and intensify public awareness campaigns.
Stablecoin Issuance Consultation Nears Conclusion
In December 2023, the Hong Kong Monetary Authority (HKMA), in partnership with the Financial Services and the Treasury Bureau, released a joint consultation paper stating that any stablecoin issuer referencing the value of one or more fiat currencies in Hong Kong would be required to obtain a license from the relevant authorities. This consultation period, lasting for two months, is set to conclude at the end of the current month.
Christopher Hui further mentioned that the HKMA has plans to establish a sandbox environment for the exploration of stablecoin issuance. This initiative will involve close collaboration with key industry stakeholders in the region, providing a controlled space for testing and innovation in the stablecoin sector.
