Hong Kong: the consultation on the regulation of crypto OTC sessions

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A government official announced today the possible imminent publication, by Hong Kong, of a consultation regarding a regulatory proposal for crypto platforms operating in the over-the-counter market.

Let’s see below all the details. 

The future of off-exchange crypto transactions: Hong Kong regulation

As previously announced, the Secretary for Financial Services and the Treasury of Hong Kong, Christopher Hui, has announced the imminent publication of a consultation on the proposal for a regulatory framework for over-the-counter (OTC) cryptocurrency platforms.

This is in light of the growing risk associated with such operations.

Today, he emphasized in a post on the current blog that OTC locations, easily accessible to the public, have been involved in fraud cases.

It has also highlighted the role of OTC venues in frauds related to unauthorized virtual asset trading platforms, stating that these venues have often deceived investors by channeling funds towards unauthorized platforms.

In response to these risks, Hui has stated the following: 

“We believe that it is necessary to regulate OTC venues and we will soon initiate a consultation on the proposed regulatory framework.”

In June 2023, Hong Kong officially introduced its licensing regime for virtual asset trading platforms, granting licenses to two authorized platforms, HashKey and OSL. 

However, Hui emphasized that OTC venues require special attention and that the Securities and Futures Commission is preparing for the implementation of regulations. 

In particular, intensifying advertising efforts in anticipation of the deadline for license applications by February 29th.

Hong Kong plans to introduce a Sandbox for stablecoins

In December, the Monetary Authority of Hong Kong announced in a joint consultation document with financial services and the Treasury Bureau that stablecoin issuers should obtain a license from the authorities

Specifically, this should happen if they intend to issue a stablecoin tied to the value of one or more fiat currencies in Hong Kong. The consultation, which lasts for two months, is about to conclude by the end of this month.

Today, Hui announced that the HKMA plans to introduce a sandbox to explore the issuance of stablecoins in collaboration with key industry players in the region.

The CEO of HKMA, Eddie Yue, stated in December that stablecoins could serve as a bridge between traditional finance and the virtual asset market. Specifically, he declared the following: 

“If stablecoins become one of the preferred payment options for the general public, we can reasonably expect further integration between the digital payment ecosystem and the real economy. The stability of the stablecoin will become increasingly crucial in this scenario.”

Bybit also advances in the license application in Hong Kong

Bybit has recently joined the list of 14 applicants seeking a license from the Securities and Futures Commission (SFC) to provide services in Hong Kong. 

According to the regulatory documentation submitted on January 31st, Bybit intends to offer services in the region through Spark Fintech Limited.

Currently, the timing and approval status of Bybit’s request by the SFC remain unclear, considering that other cryptocurrency companies, including OKX, are still awaiting regulatory approval. 

The cryptocurrency exchange based in Dubai has expressed interest in expanding its services to Hong Kong since April 2023, when it outlined plans to establish its operations in Central Asia.

According to a recent report, Bybit plans to allocate a portion of its marketing, research, and development team to Hong Kong. 

The CEO of Bybit, Ben Zhou, emphasized the importance of liquidity in the foreign exchange industry, praising Hong Kong for its extensive liquidity due to institutional capital inflows.

Zhou appreciated the city for its well-developed capital markets, high financial literacy, and considerable number of informed investors. 

However, not everyone in the cryptocurrency market shares Hong Kong’s regulatory approach. 

Wang Yang, vice president of the University of Science and Technology of Hong Kong, has criticized the city’s regulation of cryptocurrencies, describing the current licensing system as burdensome and counterproductive.