The Hong Kong government has announced plans to enhance supervision of over-the-counter (OTC) digital asset transactions, aligning them with the regulatory requirements applicable to retail digital asset transactions. The initiative was unveiled through the release of a consultation paper titled "Public Solicitation of Legislative Proposals for Regulating Over-the-Counter Trading of Virtual Assets" on February 8. Stakeholders have until April 12 to provide feedback on the proposed regulations.
A key recommendation outlined in the consultation paper is to subject OTC trading to the Anti-Money Laundering and Counter-Terrorism Financing Regulations (AMLO), slated to take effect from June 2023. OTC transactions typically involve direct dealings between providers and customers, bypassing centralized exchanges.
Under the proposed framework, only "spot trading of any virtual asset in any currency" will fall within the scope of OTC trading, while virtual asset trading will continue to be governed by standard Virtual Asset Trading Provider (VATP) licensing requirements. Peer-to-peer trading activities will remain outside the purview of OTC trading regulations. Hong Kong currently hosts approximately 200 physical VA OTC outlets, including ATMs, along with around 250 digital platforms or active online channels facilitating the buying and selling of virtual asset services.
OTC traders will be obligated to adhere to similar regulatory obligations as other virtual asset service providers. This entails obtaining approval from the Commissioner of Customs and furnishing details such as the local management office address, mailing address, and the location of local books and records. Furthermore, licensees will be restricted to transferring assets solely from their registered wallets to customer wallets, with customers required to furnish proof of ownership and control over their wallets.
The regulations will also impose restrictions on OTC traders, prohibiting them from dealing in virtual assets not listed on licensed retail VATPs or stablecoins issued by entities not licensed by the Hong Kong Monetary Authority. Additionally, the government's financial services department has emphasized the deadline for unlicensed virtual asset service providers to submit applications, warning that unapproved VASPs must cease operations by May 31 to comply with regulatory requirements.
