The primary suggestion of the paper is to include OTC trade into the jurisdiction of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).
The government of Hong Kong will tighten the regulation of the over-the-counter (OTC) virtual assets trade by subjecting it to the same requirements as the retail virtual assets trade.
On Feb. 8, the Hong Kong government published a consultation paper on regulating the over-the-counter trading of virtual assets. The consultation will last two months, until April 12.
The primary suggestion of the paper is to include OTC trade into the jurisdiction of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), effective from June 2023. Typically, OTC means deals conducted directly between the provider and the customer without a centralized marketplace, such as an exchange.
The government suggests including only “spot trade of any virtual assets for any money” under the OTC category, while the virtual assets (VA) trade will remain under the domain of a standard virtual assets trade provider (VATP) license. Peer-to-peer trading will also stay outside the scope of OTC.
According to the government, there are roughly 200 physical VA OTC shops (including ATMs) and around 250 digital platforms or active online posts on buying and selling VA services in Hong Kong.
The regulation would require OTC traders to comply with roughly the same demands as all the other virtual asset service providers. They would have to obtain a license from the Commissioner of Customs and Excise (CCE) and provide the address of the local management office, the correspondence address, and the place for local storage of books and records.
Licensees will only be allowed to transfer the VA from their registered wallets to a client wallet, and the clients would have to provide proof of ownership and/or control of their wallets.
OTC traders will not be allowed to trade virtual assets not listed on the retail VATPs or stablecoins whose issuers were not licensed by the Hong Kong Monetary Authority (HKMA).
On Feb.2, the Hong Kong government’s financial services department highlighted a deadline for unlicensed virtual asset service provider (VASP) applications and said those not approved must cease operations by May 31.