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Hong Kong proposes OTC trading legislation for virtual assets

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The Government of the Hong Kong Special Administrative Region has initiated a two-month public consultation on legislative proposals to regulate over-the-counter (OTC) trading services of virtual assets (VA). This is a progressive step in respect to the government’s commitment outlined in the October 2022 Policy Statement on the Development of Virtual Assets in Hong Kong.

Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO), the regulatory framework for virtual asset service providers was established. 

Launched in June 2023, this framework serves as a blueprint for overseeing the activities of virtual asset (VA) trading platforms.

In light of the identified participation of virtual asset over-the-counter (OTC) operators in fraudulent activities, the government is currently working to expand the scope of regulation under the AMLO to encompass OTC services. 

This initiative aims to address money laundering and terrorist financing risks associated with OTC operations, with a simultaneous focus on ensuring investor protection.

The proposed legislative changes include mandatory licensing for those conducting spot trade services of any virtual asset (VA) for money in Hong Kong. The regulations will apply to all VA over-the-counter (OTC) services, whether provided through physical outlets or other platforms. 

Furthermore, the Commissioner of Customs and Excise (CCE) will have the authority to oversee licensees’ anti-money laundering and counter-terrorist financing practices, ensuring adherence to statutory and regulatory obligations. 

Transitional arrangements are also included in the legislative proposals to ease the implementation of the regulatory regime. The government has asked the public to submit their views on the proposals to the Financial Services and the Treasury Bureau

Over the past three months, the Hong Kong government has actively embraced the digital economy while emphasizing regulatory compliance. One notable measure includes reminding virtual asset trading platforms (VATPs) to submit license applications by February 29, 2024, with non-compliance leading to mandatory closure by May 31, 2024.

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