Hong Kong To Crack Down On OTC Crypto Platforms Amid Fraud concerns

According to the Secretary for Financial Services and the Treasury, Christopher Hui, The Hong Kong government plans to launch a public consultation on a new regulatory framework for over the counter (OTC) crypto trading platforms.

Hui said in a blog post today that some OTC venues, which allow users to buy and sell crypto assets directly without intermediaries, were involved in fraud cases last year, where they deceived investors into sending funds to unlicensed virtual asset (VA) platforms.

“OTC venues have played a certain role in some of the fraud cases involving some unlicensed VA trading platforms last year, having misled investors to channel funds to these unlicensed platforms,” Hui said. “Therefore, we believe it is necessary to bring OTC venues under regulation, and we will launch a consultation very soon on the proposed regulatory framework.”

The consultation will seek views from the public and the industry on the proposed regulation’s scope, requirements, and implementation, which aims to enhance investor protection and combat money laundering and terrorist financing risks.

Hong Kong Tightens Crypto Licensing Regime

Hong Kong introduced its crypto licensing regime in June 2023 to regulate virtual asset trading platforms offering retail services, coinciding with the consultation, and is now tightening it. So far, only two platforms, HashKey and OSL, have obtained such licenses from the Securities and Futures Commission (SFC).

The SFC has allowed existing platforms to apply for licenses by Feb. 29, 2024, after which they will face enforcement actions if they continue to operate without authorization. Hui said the SFC is “preparing for enforcement work” and will increase public awareness of the licensing system.

Meanwhile, the Hong Kong Monetary Authority (HKMA), the city’s central bank, is also exploring the regulation and issuance of stablecoins, which are crypto assets pegged to fiat currencies or other assets. The HKMA, the Financial Services, and the Treasury Bureau issued a joint consultation paper in Dec, proposing that stablecoin issuers obtain a license from the authorities “if it issues a stablecoin that references the value of one or more fiat currencies in Hong Kong.”

The consultation will end on Jan. 31, 2024, and the HKMA plans to launch a sandbox with key regional stakeholders to test the feasibility and impact of stablecoin issuance. Eddie Yue, chief executive of the HKMA, said in Dec that stablecoins could bridge the gap between traditional finance and the virtual asset market and pose challenges to financial stability and consumer protection.

“In a scenario where stablecoins become one of the preferred payment options by the general public, we should reasonably expect further integration between the digital payment ecosystem and the real economy, and whether the stablecoin is indeed ‘stable’ will then become ever more important,” Yue said.

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Furthermore, the author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing.

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