Hong Kong eyes SFC involvement in crypto OTC licensing: report

Hong Kong is reportedly considering involving the local securities regulator in the licensing of over-the-counter cryptocurrency trading services.

Over-the-counter cryptocurrency trading services in Hong Kong could soon come under the joint supervision of the Securities and Futures Commission and the Customs and Excise Department as the city seeks to tighten its regulatory framework.

The SFC is exploring a new licensing regime for OTC crypto services, working with the C&ED to address regulatory gaps identified in the wake of the JPEX scandal, which led to losses of more than $200 million, the South China Morning Post reported, citing people familiar with the matter.

Previously, OTC services were regulated solely by the C&ED, but recent discussions suggest a shift toward a unified regulatory approach. The SFC is consulting with industry players on the potential new regime and is also considering regulations for crypto custody services. These discussions are still in the early stages and subject to change, the sources said.

In mid-August, crypto.news reported that the SFC had identified unsatisfactory practices during on-site inspections of 11 “presumed licensed” crypto exchanges, casting doubt on their ability to meet full licensing requirements. The investigation found that some exchanges were overly reliant on a small number of managers to manage the custody of customer assets, while others “failed to adequately protect against cybercrime risks.”

Hong Kong’s regulatory landscape is evolving, with new licensing requirements for crypto exchanges and the introduction of crypto exchange-traded funds . But concerns remain among local players. In March, Alessio Quaglini, co-founder and CEO of crypto custodian Hex Trust, expressed concerns about proposed OTC regulations, suggesting that the strict requirements could push businesses like Hex Trust to relocate to more crypto-friendly jurisdictions.