Hong Kong is reevaluating its approach to managing over-the-counter (OTC) virtual asset services. Plans are underway to potentially engage the Securities and Futures Commission (SFC) alongside the Customs and Excise Department (C&ED) for better oversight.
The SFC is currently consulting the industry on the establishment of a new licensing regime. This agreement has a mutual purpose of increasing the ability of SFC and C&ED to enforce laws better. Early considerations reveal that these efforts remain promising and to be preferred to develop depending on what the players in the industry provide.
Under the prior proposal of February, only the C&ED was going to oversee the regulations concerning OTC services. Two parties usually transact large quantities using OTC platforms, and they do it outside the public.
Custodial Service Regulations
Apart from the OTC services, the SFC has started discussions concerning the regulation of cryptocurrency custodial services. The purpose is to administer capable and precise regulations. This will aid in achieving long-term development of the virtual asset market in Hong Kong. An SFC spokesperson emphasized the commission’s commitment to collaborating with other regulators and the government to achieve these goals.
Responses to Regulatory Proposals
The FSTB extended a two-month period for the public to comment on these regulations. It has not announced the outcome. However, preliminary feedback has been largely supportive, and the FSTB is currently refining the regulatory framework based on these responses.
These rules follow major fraud incidents, including one with the JPEX exchange. It reportedly caused losses of about HK$1.6 billion (US$225 million). This incident showed the need for stricter oversight. Physical OTC outlets were major channels for fraud against retail investors.
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Hong Kong’s Crypto Market Evolution
To attract more business, Hong Kong has been reshaping its crypto policies to offer greater regulatory clarity. This includes pioneering the launch of exchange-traded funds (ETFs) that invest in crypto tokens, marking Hong Kong as a leader in the spot ether ETF market.
Despite these advancements, the U.S. has emerged as a formidable competitor in the crypto-friendly arena. Both leading presidential candidates support the industry, boosting its appeal. Moreover, the U.S. has introduced spot bitcoin and ether ETFs, which have overshadowed Hong Kong’s market activities.
Hong Kong is developing its crypto rules, keeping a balance between innovation and investor protection. Despite growing international competition, the city’s strategic regulatory adaptations aim to position itself as a secure and attractive global fintech hub.
