Hong Kong Proposes Unified Global AML Standards for OTC Crypto Traders

Hong Kong's government is tightening regulations on over-the-counter (OTC) digital asset trading, extending the same requirements as those for retail digital asset trade.

The move comes as part of the government's efforts to regulate the growing virtual assets sector.

The government recently launched a "Public Consultation on Legislative Proposals to Regulate Over-the-Counter Trading of Virtual Assets," which will extend until April 12. The main goal is to bring OTC trade under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).

Typically, OTC transactions involve direct dealings between parties without the need for a centralized marketplace. The proposed regulation aims to cover only spot trades of virtual assets for money, leaving peer-to-peer trading outside its scope.

According to government data, Hong Kong currently hosts approximately 200 physical OTC outlets, including ATMs, and around 250 digital platforms or active online posts facilitating buying and selling of virtual assets.

Under the proposed regulations, OTC traders would need to comply with similar requirements as other virtual asset service providers. They would be required to obtain a license from the Commissioner of Customs and Excise, furnish details of their local management office, correspondence address, and the location for local storage of records.

Licensees would only be permitted to transfer assets from registered wallets to client wallets, with clients needing to provide evidence of ownership and control over their wallets. Additionally, OTC traders would be prohibited from trading virtual assets not listed on retail virtual asset trading platforms or stablecoins issued by unlicensed entities.

The consultation also highlights a deadline for unlicensed virtual asset service providers, stating that those not approved must cease operations by May 31.

According to Cointelegraph, a government spokesperson said that the proposed legislative framework aims to create a robust and transparent regulatory environment for the sustainable development of virtual assets and Web3. It seeks to mitigate money laundering and terrorist financing risks associated with virtual asset activities while ensuring investor protection.

The regulatory framework also grants supervisory powers to the Commissioner of Customs and Excise to oversee the anti-money laundering and counter-terrorist financing conduct of virtual asset licensees, along with enforcing statutory and regulatory requirements.

Recent fraudulent activities detected in OTC venues have underscored the need for regulation, according to Hong Kong's Secretary for Financial Services and the Treasury, Christopher Hui, which is why the government aims to address these concerns by introducing a comprehensive regulatory framework for OTC trading.