Hong Kong s preparing to launch a public consultation regarding a new regulatory framework specifically tailored for over-the-counter (OTC) crypto venues. These include both physical shops and online platforms engaged in virtual asset (VA) transactions. The decision stems from instances where certain OTC venues were implicated in fraud cases linked to unlicensed VA trading platforms in the previous year.
The Financial Services and the Treasury Bureau (FSTB) announced in a blog post on Friday that it plans to start the consultation process “very soon”. The FSTB said that some OTC venues had played a “certain role” in misleading investors to channel funds to unlicensed VA platforms, which resulted in losses and scams.
Therefore, we believe that it is necessary to bring OTC venues under regulation, and we will launch a consultation very soon on the proposed regulatory framework, the FSTB said.
The FSTB did not provide details on the proposed framework, but it is expected to follow the “same risk, same regulation” principle, which means that OTC venues will be subject to similar rules and standards as other financial intermediaries.
A Vibrant Sector and Ecosystem
The FSTB also said that it wanted to develop a “vibrant sector and ecosystem” for VAs in Hong Kong, in line with its efforts to regulate the sector in recent years. In June last year, the FSTB introduced a licensing regime for VA service providers (VASPs), such as crypto exchanges, which requires them to comply with anti-money laundering and counter-terrorist financing requirements, as well as investor protection measures.
The licensing regime will take full effect in June this year, and VASPs will need to obtain approval from the Securities and Futures Commission (SFC) before they can continue to operate in Hong Kong. The SFC will also publish lists of licensed and unlicensed VASPs to enhance public awareness.
Hong Kong’s Regulatory Moves In Crypto
In addition to the OTC venue regulation, Hong Kong is also working on a regulatory regime for stablecoin issuers, especially those that are backed by fiat currencies. The FSTB said that it would consult on the proposed regime in the first half of this year.
The proposed regime would require fiat-backed stablecoin issuers to obtain a license from the Hong Kong Monetary Authority (HKMA), and to meet certain prudential and operational requirements. The FSTB said that the regime would aim to safeguard monetary and financial stability, as well as consumer protection.
Hong Kong’s approach to stablecoin and crypto regulation is similar to that of other jurisdictions, such as the UK and Singapore, which have also proposed to regulate stablecoins as payment systems or e-money.
Hong Kong’s crypto regulation is a balancing act between fostering innovation and mitigating risks. The FSTB said that it would continue to monitor the global and local developments of VAs, and to collaborate with other regulators and stakeholders to ensure a sound and conducive regulatory environment for the sector.
Related Reading | Charles Schwab Bets Big On Bitcoin ETF Amidst Industry Giants’ Caution
