- Hong Kong plans to regulate OTC crypto trading platforms under anti-money laundering laws starting in June 2024, requiring licensing and customer verification.
- This aims to standardize rules between OTC trading and regulated retail crypto exchanges.
- The government cites risks of unlicensed OTC platforms and leveling the playing field as rationale for the new regulations.
Hong Kong is set to tighten over-the-counter (OTC) crypto trading regulations by extending anti-money laundering requirements to OTC platforms. This move aims to level the playing field between OTC and retail crypto trading.
Background on OTC Crypto Trading
OTC trading involves deals made directly between a provider and customer without a centralized exchange. Currently, OTC platforms are not regulated like retail crypto exchanges in Hong Kong.
The Proposed Changes
On February 8, Hong Kong’s government released a consultation paper outlining plans to regulate OTC platforms under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) starting in June 2024.
This would require OTC platforms to obtain a license and comply with regulations similar to retail crypto exchanges. OTC traders would need to verify customer identities and wallet addresses while only allowing trading of approved assets.
According to the government, around 200 physical OTC outlets and 250 digital OTC platforms are active in Hong Kong. Regulating these brings OTC trading in line with other crypto services that already require licensing.
It also addresses money laundering risks in the OTC crypto sector. Unlicensed platforms have until May 31 to cease operations or apply for a license under the new rules.
These incoming regulations indicate Hong Kong aims to extend oversight to the OTC crypto sector. While more reporting and compliance burdens may arise, standardized rules could also promote fairer market practices.