Hong Kong has declared it is increasing its scrutiny of cryptocurrency by paying for new licensing requirements for over-the-counter (OTC) crypto trading. The SFC is currently leading this regulation effort to control OTC crypto services in conjunction with the C&ED.
This is meant to increase openness and counter unlawful conduct, such as the funding of terrorism and money laundering activities. According to the proposal, OTC crypto operators must also receive a license from the Commissioner of Customs and Excise.
This step would place the OTC market alongside the VA trading platforms, which the SFC already regulates. Given recent occurrences, the Hong Kong government aims to launch a clean and regulated crypto market to encourage more investors.
Hong Kong Tightens OTC Crypto Trading Rules
The United Asian financial hub regulatory authority has recently stepped up its efforts to regulate OTC crypto trading by licensing the involved parties. The SFC has been advising industry players on how to structure this framework.
Specifically, operators must meet the license and rigid AML and CTF regulation procedures under the new regulation. This plan comes after a session that the company held in February, during which it prepared the ground for regulatory shifts.
The consultation was also envisaged to enhance the currently fragile regulation of the OTC market while raising investor confidence. Consequently, the SFC and the C&ED may quickly co-regulate crypto OTC services, a new period in Hong Kong regulation.
For some reason, virtual asset trading platforms are notably excluded from the proposal since the SFC regulates such entities. Nevertheless, the extension of restrictions to OTC services demonstrates that Hong Kong will only increase its regulation of all forms of crypto trading.
This increase in regulation is anticipated to increase the protection for investors besides acting as a discouragement to the illegitimates.
Hong Kong Boosts Efforts to Regulate Crypto Trading
The Hong Kong regulator’s announcement to focus on OTC cryptocurrency trading is likely due to precedents such as the JPEX disaster. The government has been keen to ensure that such incidences do not reoccur through enhanced supervisory mechanisms.
The SFC has only recently released a list of seven unauthorized crypto trading platforms, demonstrating that it is time to step up efforts to improve compliance. These exchanges, such as Taurusemex, Yomaex, and Bitones, were said to have engaged in unlawful activities from Hong Kong.
Regarding such risks, the SFC has issued specific warnings and has an ever-changing list of non-compliant firms. The focus on regulation highlights the fact that Hong Kong is very active in preventing fraud and making the cryptocurrency market more secure.
Apart from controlling trading, the SFC has only started initial talks with businesses regarding authorizing cryptocurrency custodians. Once implemented, this new framework would place high standards and specific conditions on organizations seeking storage services for such assets.
By providing coverage for trading and custody services, Hong Kong aims to establish a suitable environment for crypto investors, ensuring compliance with the laws amid innovative technologies.
Stricter Regulations Aim to Boost Investor Confidence
In particular, Hong Kong’s decision to adjust the OTC crypto market will likely encourage more institutional investors to join. Chainalysis data revealed that the city’s crypto OTC market received $64 billion between July 2022 and June 2023.
Some of this activity can be attributed to the robust OTC trading environment Hong Kong enjoys. New licensing rules will further promote market expansion by providing definite legal requirements for its functioning.
This, in turn, could help improve investor confidence because the firms that comprise this sector will have to operate under strict regulatory requirements. The action could strengthen Hong Kong as a major financial center, particularly with respect to cryptocurrency transactions.
