The Evolution of Virtual Asset Regulation in Hong Kong: From OTC Vacuum Zone to Comprehensive Regulation

In recent years, Hong Kong's virtual asset regulatory system has undergone significant changes. Over the three years starting from 2023, the regulatory scope has expanded from trading platforms to over-the-counter trading (OTC), ultimately covering the entire virtual asset trading ecosystem. This evolution reflects Hong Kong's determination to address emerging financial risks and improve its regulatory framework.

In May 2025, the Hong Kong police uncovered a virtual asset money laundering case involving 15 million USD, where the criminal gang primarily dispersed and transferred funds through OTC channels in Tsim Sha Tsui. Previously, in the widely publicized JPEX case, investigators found that much of the involved funds were exchanged and transferred through local OTC shops, becoming a key link in the fraud chain.

Subsequently, the Hong Kong government released a public consultation document on the "Legislative Proposal for Regulating Virtual Asset Trading Services" in June 2025, proposing to include all virtual asset trading services, including OTC, under a unified licensing regulatory framework. Although the proposal is still in the consultation stage, it outlines a clear blueprint for the future development of virtual asset regulation in Hong Kong—from the early licensing of trading platforms to the regulation of cryptocurrency shops, and ultimately to the comprehensive coverage of virtual asset trading services.

Regulatory Evolution Process

1. 2023: Virtual asset trading platforms brought under regulation

At the end of 2022, Hong Kong passed relevant amendment regulations to implement a licensing system for virtual asset trading platforms starting from June 2023, regulated by the Securities and Futures Commission. However, this system only targets businesses that involve "electronic platforms + contact with customer assets", while physical coin stores, counters, ATMs, and other OTC scenarios are not included, creating a regulatory gap.

2. 2024: OTC services included in regulatory scope

At the beginning of 2024, Hong Kong launched a consultation on the "Licensing Regime for Virtual Asset Over-the-Counter Trading Services", which will for the first time bring physical OTC under regulation. The main contents include: all virtual asset spot trading (physical or online) operated in Hong Kong must be licensed; the licensing will be handled by Hong Kong Customs; it covers fiat currency exchange and transfers of mainstream cryptocurrencies.

3. 2025: Comprehensive Integration of Virtual Asset Trading Service Regulation

In June 2025, Hong Kong released the second round of legislative proposals for the regulation of virtual asset trading services, with both the scope and depth of regulation upgraded.

• The scope expands to complex services such as bulk trading, brokerage matching, settlement and exchange, and asset management.
• The regulatory authority has been adjusted to the China Securities Regulatory Commission for licensing, while the Monetary Authority regulates banking and stored value payment instrument businesses.
• Adhere to the principles of the same business, the same risk, and the same rules.
• Provide exemption arrangements for stablecoin issuers that meet specific criteria

The driving factors behind policy changes

1. Major cases occur frequently, exposing regulatory loopholes.

In recent large-scale money laundering and fraud cases, OTC channels have been used as tools to evade regulation and quickly transfer funds, highlighting the shortcomings of the existing regulatory framework.

2. International Regulatory Pressure and FATF Standards

The Financial Action Task Force ( FATF ) requires all jurisdictions to fully incorporate virtual asset service providers into their anti-money laundering/anti-terrorist financing frameworks. To maintain its status as an international financial center, Hong Kong must actively respond to international standards.

3. Local public opinion drives policy upgrades

The public consultation in 2024 received a large amount of feedback, which focused on issues such as the high risks of OTC trading and the difficulty in tracking cross-border fund flows, prompting the government to expand the scope of regulation.

Conclusion

Hong Kong's regulation of virtual assets is developing towards a systematic and international direction. From platform regulation to the inclusion of currency shops, and then to the proposal of a full-chain "VA Dealing" framework, the regulatory system is becoming increasingly完善. Although the latest regulatory plan is still in the consultation stage, it has laid the foundation for future legislation and demonstrated Hong Kong's determination to pursue regulatory innovation while balancing risk prevention in the field of virtual assets.