Hong Kong Tightens Regulatory Oversight of Crypto OTC Market

On its path to building its status as a global virtual asset hub, Hong Kong is continuously refining its regulatory framework to ensure comprehensiveness and effectiveness, including for the over-the-counter (OTC) market—a key link in the liquidity flow for Bitcoin and other large assets. Recently, a significant strategic change related to the supervision of these OTC services was announced.

Speaking on the matter, Christopher Hui, Hong Kong's Secretary for Financial Services and the Treasury, explained the shift in regulatory direction. Initially, following a public consultation last year, the government had proposed that virtual asset OTC services would be supervised by the Customs and Excise Department.

However, this proposal faced some opposition from members of the Legislative Council due to concerns about potential regulatory arbitrage. Hui also admitted that upon closer review, the government realized the OTC market's operating model was more complex than first assessed. These entities not only provide trading services but also offer custody and trust services—foundational activities of the DeFi space.

Faced with this reality, the government decided to adjust its plan. Instead of Customs, the Securities and Futures Commission (SFC), the agency that already regulates licensed crypto exchanges, will now be the primary supervisor for OTC service providers as well. In cases where banking services are involved, the Hong Kong Monetary Authority (HKMA) will act as the frontline regulator.

This move is seen as a positive development for Hong Kong. Placing the OTC market under the supervision of the SFC, an agency with deep experience in financial markets, enhances the credibility and legitimacy of the city's entire virtual asset legal framework. Christopher Hui also pledged that regardless of which providers are ultimately licensed, the public will be fully informed, affirming Hong Kong's determination to build a safe and transparent blockchain environment.