Hong Kong to Introduce Universal AML Requirements for OTC Crypto Traders

TL;DR
1. Public consultation on virtual asset OTC trading regulation: Feb. 8 - Apr. 12.
2.OTC trading to fall under AMLO by June 2023, per primary suggestion.
3.Spot trades for money: OTC. VATP licenses for virtual asset trading.
4.Hong Kong: 200 physical VA OTC outlets, 250 digital platforms.
5.OTC traders need licenses, store records locally, and transfer assets to client wallets.
6.OTC traders limited to VATP-listed assets; licensed stablecoins only.
7.HK Govt: Unlicensed VASPs must cease by May 31.

The Hong Kong government plans to tighten regulations on over-the-counter (OTC) digital asset trading, subjecting it to the same anti-money laundering (AML) requirements as retail digital asset trading.

Public Consultation on Legislative Proposals

A "Public Consultation on Legislative Proposals to Regulate Over-the-Counter Trading of Virtual Assets" was published on Feb. 8, with the consultation period extending until April 12.

Key Suggestions of the Proposal

The primary suggestion is to bring OTC trading under the jurisdiction of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) by June 2023. OTC trade involves direct deals between providers and customers without a centralized marketplace.

Scope of Regulation

Only spot trades of virtual assets for money will fall under the OTC category. Virtual asset trading will continue under standard virtual asset trade provider (VATP) licenses, with peer-to-peer trading remaining outside the scope of OTC.

Current Landscape

Hong Kong has around 200 physical VA OTC outlets, including ATMs, and approximately 250 digital platforms or active online posts for buying and selling VA services.

Regulatory Requirements for OTC Traders

OTC traders must comply with similar demands as other virtual asset service providers, obtaining a license from the Commissioner of Customs and Excise. They must provide local management office details, correspondence address, and local storage of books and records.

Licensees can only transfer assets from registered wallets to client wallets, with clients required to prove ownership and control over their wallets.

Restrictions on Trading

OTC traders cannot deal in virtual assets not listed on retail VATPs or stablecoins from unlicensed issuers by the Hong Kong Monetary Authority.

Upcoming Deadline for Unlicensed VASPs

The financial services department of the Hong Kong government highlighted a deadline for unlicensed virtual asset service provider (VASP) applications, stating that those not approved must cease operations by May 31.

Conclusion：Hong Kong: Tightening OTC Regulations

The Hong Kong government plans to tighten regulations on over-the-counter (OTC) digital asset trading, aligning it with AML requirements. A public consultation on legislative proposals is ongoing until April 12. Key suggestions include subjecting OTC trading to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) by June 2023. OTC traders must obtain licenses and adhere to regulatory requirements similar to other virtual asset service providers. Restrictions are placed on trading unlisted assets, and unlicensed VASPs face a deadline to cease operations by May 31.