Strict rules are in place to limit unlawful transactions in Hong Kong, which targets over-the-counter crypto businesses.
In particular, the OTC crypto services have the attention of the Hong Kong government. Around 450 stores, ATMs, and websites allow over-the-counter cryptocurrency trading in the city, which is a significant East Asian center for digital asset exchanges.
The $64 billion digital asset movement in the city is now dependent on these services. Government officials are stepping up their efforts to crack down on illegal transactions and financial instability.
The Hong Kong customs agency spearheaded new legislation requiring over-the-counter cryptocurrency providers to retain detailed client records and increase oversight for wrongdoing. This step demonstrates a larger goal of facilitating the transfer of digital assets via regulated cryptocurrency exchanges.
The deadline for these exchanges to obtain or apply for licenses is February 29, according to the standards set by the Securities & Exchange Commission for mid-2023.
“The anticipated OTC framework will lead to consolidation and a decline in the usage of these platforms as on-ramps into crypto,” said Chengyi Ong, APAC policy director at Chainalysis.
In an effort to curb fraud, money laundering, and terrorist funding, the Financial Services and Treasury Departments have also begun a survey about over-the-counter rules. Nevertheless, there is some controversy about the customs department’s designation as the regulating body.
Jason Chan, a lawyer, is worried that this would show an inconsistent approach to regulation. But the Treasury and Financial Services Bureau stand by their choice, saying that the customs department’s extensive knowledge is essential for monitoring the new system.
These changes create big problems for over-the-counter companies like One Satoshi. Although the company currently conducts essential anti-money laundering and know-your-customer checks, the new rules would definitely raise operating expenses, as pointed out by co-founder Roger Li. These difficulties force over-the-counter enterprises to choose between staying in the crypto industry or leaving it altogether.
Curiously, in the middle of these regulatory changes, Huobi has decided to withdraw its application. This action highlights the difficulties encountered by crypto companies operating under the new regulations.
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