Hong Kong Virtual Asset Regulation: From OTC Vacuum to Comprehensive Coverage

In recent years, Hong Kong has made significant progress in the regulation of virtual assets, particularly in the over-the-counter (OTC) trading sector. From an initial regulatory vacuum to the proposed comprehensive regulatory framework today, Hong Kong's regulatory authorities have completed the transition from a "vacuum zone" to "full chain management" in three years.

In May 2025, the Hong Kong police successfully dismantled a virtual asset money laundering group worth 15 million USD. The gang primarily split and transferred funds through the OTC channels in Tsim Sha Tsui. Previously, in the highly publicized JPEX case, the Commercial Crime Bureau also found that many of the involved funds were exchanged and transferred through local OTC shops, becoming an important link in the fraud chain.

Subsequently, the Hong Kong government released a public consultation document on legislative proposals for regulating virtual asset trading services in June 2025. The document proposes to include all virtual asset trading services, including OTC, within a unified licensing regulatory framework. Although this proposal is still in the consultation stage, it outlines a clear blueprint for the future regulation of virtual assets in Hong Kong.

The development of virtual asset regulation in Hong Kong can be divided into three stages:

Phase One (2023): Virtual Asset Trading Platforms (VATP) are brought under regulatory oversight, but OTC becomes a blind spot for regulation. The existing system mainly targets "electronic platforms + direct customer asset interaction" businesses, while physical coin stores, counters, ATMs, and other OTC scenarios are not included.

Phase Two (2024): The Financial Secretary and the Treasury Bureau will launch the first round of consultations on the licensing system for virtual asset over-the-counter (OTC) trading services, officially bringing physical OTC under regulatory oversight. This system requires that all individuals or entities engaging in virtual asset spot trading in Hong Kong must be licensed, with licensing administered by the Hong Kong Customs.

Phase Three (2025): Hong Kong will publish the second round of legislative proposals for regulating virtual asset trading services, with both the scope and depth of regulation being upgraded. The new framework covers complex services such as large-scale transactions, brokerage matching, settlement and exchange, and asset management, and will adjust the regulatory authority to the Securities and Futures Commission for licensing, while the Monetary Authority will regulate banks and stored value payment tools.

There are multiple driving factors behind this series of policy changes:

1. Major cases occur frequently, exposing a regulatory vacuum. Multiple money laundering and fraud cases involving OTC highlight the shortcomings of the existing regulatory framework.

2. International regulatory pressure and FATF standards. To maintain Hong Kong's status as an international financial center, regulatory authorities must meet international anti-money laundering and counter-terrorism financing requirements.

3. Local public opinion drives policy upgrades. The numerous feedback received by the government focuses on issues such as the high risk of OTC and inadequate regulatory coverage.

Overall, the regulation of virtual assets in Hong Kong is developing towards a systematic and international direction. From platform regulation to the management of cryptocurrency stores, and then to the proposal of a comprehensive "VA Dealing" framework, Hong Kong is striving to build a comprehensive and effective regulatory system for virtual assets. Although the latest regulatory framework is still in the public consultation stage, it undoubtedly marks an important step forward for Hong Kong in the field of virtual asset regulation.