• Hong Kong is considering new regulations involving the SFC and C&ED for OTC virtual asset trading services.
• The city has introduced strict penalties for unlicensed crypto exchanges.

According to an exclusive report from the South China Morning Post (SCMP), Hong Kong is considering involving the Securities and Futures Commission (SFC) and the Customs and Excise Department (C&ED) in regulating over-the-counter (OTC) virtual asset trading services. This initiative comes as the city grapples with the challenges of managing the crypto industry.

Following this, in February, Hong Kong authorities proposed a stringent scheme to address the issue of unlicensed crypto asset exchange operations. Under this scheme, individuals operating unlicensed crypto exchanges could face up to two years in prison and a fine of HK$1 million. 

This move follows a significant investor loss of HK$1.6 billion from crypto scams last year. With physical OTC shops identified as major facilitators of these fraudulent activities. These shops were found to be a primary channel for funneling retail investors’ funds into fraudulent schemes.

An SFC representative highlighted the need for collaboration in creating a solid regulatory framework. Noting that the SFC is working with the government and other regulators to establish a clear and consistent regulatory environment for Hong Kong’s virtual assets industry.

Hong Kong’s Evolving Crypto Landscape

Over the past two years, Hong Kong has been refining its approach to the crypto industry. Aiming to attract investment while mitigating risks for retail investors. This evolving strategy includes the introduction of exchange-traded funds (ETFs) that invest directly in crypto tokens. 

Hong Kong has become the first major financial market to approve spot ether ETFs. The city is also working on a regulatory framework for stablecoins, typically pegged to fiat currencies such as the US dollar.

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