Hong Kong authorities propose regulatory shake-up for over-the-counter virtual asset stores, with unlicensed outlets to risk 2-year jail term

Financial Services and the Treasury Bureau launches public consultation for proposed regulations covering over-the-counter traders, in bid to clamp down on crypto scams

‘Nowadays we don’t have any regulations for those OTC exchange shops, so anybody can open a shop anywhere in Hong Kong,’ lawmaker says

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Hong Kong is looking to shore up regulations covering over-the-counter virtual asset exchanges. Photo: Shutterstock

Published: 12:09am, 9 Feb 2024

Hong Kong authorities have proposed punishing anyone caught operating virtual asset exchange stores without a licence with up to two years in jail and a HK$1 million (US$127,873) fine, after investors lost more than HK$1.7 billion in cryptocurrency scams last year.

The Financial Services and the Treasury Bureau on Thursday launched a public consultation as part of efforts to create a licensing regime for over-the-counter (OTC) virtual asset trading services.

The government proposal defined OTC services as those involving the spot trading of virtual assets.

Police last September cordon off Coingaroo as part of an investigation into the JPEX scandal. Photo: Jelly Tse

Lawmaker Johnny Ng Kit-chong said that while virtual asset trading platforms performed in a manner similar to stock exchanges, those offering OTC services were more akin to money changers.

Such services allowed customers to trade their currency for virtual assets through physical or online storefronts, he explained.

Unlike OTC shops, trading platforms have been under regulatory control since last June, with only two approved thus far.

According to government estimates, there are currently 450 stores offering OTC services in Hong Kong, 250 of which operate online. The rest are physical outlets.

“Nowadays we don’t have any regulations for those OTC exchange shops, so anybody can open a shop anywhere in Hong Kong,” Ng said.