Nikolas Sargeant
Hong Kong's Securities and Futures Commission (SFC) is contemplating overseeing over-the-counter (OTC) cryptocurrency trading services in partnership with the Customs and Excise Department (C&ED).
According to a South China Morning Post report, the SFC has sought industry input on a novel licensing framework for crypto OTC services. This move could result in joint supervision by both the SFC and C&ED.
Proposed Licensing Framework for OTC Crypto Traders
The initiative follows Hong Kong's February consultation on regulating OTC crypto trading. The proposal aims to establish a licensing system for virtual asset OTC services, requiring operators to obtain licenses and comply with anti-money laundering and counter-terrorist financing regulations.
Under the proposed framework, entities trading virtual assets in Hong Kong would need to secure a license from the Commissioner of Customs and Excise (CCE). Virtual Asset Trading Platforms, already under SFC regulation, would be exempt. This latest development expands the SFC's regulatory reach to the OTC sector.
Hong Kong's Thriving OTC Market Drives $64B Crypto Influx
Hong Kong's crypto OTC services facilitate high-volume trades directly between parties, often bypassing traditional exchanges. Chainalysis data reveals a $64 billion crypto influx into Hong Kong from July 2022 to June 2023, with a substantial portion attributed to the city's robust OTC market.
The government's focus on regulating OTC services, particularly in the wake of incidents like the JPEX scandal, underscores its commitment to fostering a legitimate market. This emphasis could attract further investment into Hong Kong's crypto sector and potentially fuel OTC market growth.
Additionally, the SFC is engaging in preliminary discussions with companies about introducing a new licensing framework for cryptocurrency custodian services.
