Hong Kong Government and Industry to Discuss Regulatory Approach for Physical OTC Outlets

Hong Kong Government and Industry to Discuss Regulatory Approach for Physical OTC Outlets
Source: hkej

The Hong Kong Legislative Council's Committee on Financial Affairs will discuss the regulation of virtual asset trading platforms and the feasible regulatory framework for Over-the-Counter (OTC) entities. In response, the Financial Services and the Treasury Bureau stated that the government and regulatory authorities periodically review regulatory measures and consider introducing appropriate measures in response to market developments. This includes the regulation of related businesses outside virtual asset trading platforms, with considerations given to suitable regulatory authorities, forms, and requirements.

OTC outlets operate as physical stores, providing a convenient channel for many retail investors to trade virtual currencies. Customers can exchange Hong Kong dollars directly for equivalent amounts of stablecoins like Tether (USDT), Bitcoin, Ethereum, etc., and transfer them to their exchange platform accounts or personal wallets. It is estimated that Hong Kong has over a hundred OTC outlets, with some OTCs processing cash transactions totaling billions annually.

Recently, the virtual asset trading platform JPEX, suspected of conspiracy to commit fraud, received funds through multiple virtual currency Over-the-Counter (OTC) outlets. However, OTC outlets are currently not regulated by any government department, posing risks of criminal activity and money laundering. The OTC industry believes that the legislative and regulatory process takes time and may lag behind industry developments. They suggest establishing an industry organization to initiate self-regulation, setting Know Your Customer (KYC) and Anti-Money Laundering (AML) standards. They also hope to cooperate with law enforcement agencies to exchange information on suspicious wallets to prevent money laundering and fraud from the source.

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Policy and Regulation

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