According to the city’s chief financial regulator, Hong Kong is set to introduce a public consultation on a new set of rules for over-the-counter (OTC) cryptocurrency trading platforms. Christopher Hui, Secretary for Financial Services and the Treasury shared in a blog post that the move comes in response to the growing risks associated with these platforms, some of which have been linked to fraudulent activities.
Hui highlighted that OTC trading platforms, widely accessible to the general populace, have been implicated in several fraud cases last year. “OTC venues have played a certain role in some of the fraud cases involving some unlicensed VA trading platforms last year, having misled investors to channel funds to these unlicensed platforms,” he explained. Therefore, he believes it’s crucial to regulate OTC venues and announced that a consultation on the proposed regulatory framework will be launched very soon.
In June 2023, Hong Kong initiated a licensing system for crypto exchanges, permitting licensed platforms to offer services to retail investors. Only HashKey and OSL have received licenses under this new regime. The city has provided a transitional period for existing operators to comply with the new regulations and apply for licenses by February 29.
As the deadline nears, Hui warns that the Securities and Futures Commission is gearing up for enforcement actions and will intensify its public awareness campaigns.
Additionally, Hui discussed the regulation of stablecoins. In December, the Hong Kong Monetary Authority, the Financial Services, and the Treasury Bureau proposed in a consultation paper that stablecoin issuers in Hong Kong would need to secure a license if they issue a stablecoin pegged to one or more fiat currencies. This consultation period is due to conclude at the end of the month.
Hui also revealed plans to create a sandbox environment to explore stablecoin issuance with leading industry figures in the region. Eddie Yue, the HKMA’s chief executive, commented on the potential of stablecoins as a bridge between traditional finance and the crypto market. Yue emphasized the importance of stability in stablecoins, especially if they become a widespread payment method, noting, “In a scenario where stablecoins become one of the preferred payment options by the general public, we should reasonably expect further integration between the digital payment ecosystem and the real economy, and whether the stablecoin is indeed ‘stable’ will then become ever more important.”
