On 8 February 2023, the Financial Services and the Treasury Bureau (FSTB) launched a consultation on legislative proposals to introduce a licensing regime to regulate providers of over the counter (OTC) trading services for virtual assets (VAs) (the Consultation).  The proposed licensing regime will be introduced by amending the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO).

Background

The licensing regime for VA trading platforms (the VATP regime) came into effect in June 2023, which requires VA service providers operating a VATP to be licensed by the Securities and Futures Commission (the SFC).  OTC trading activities involving VAs do not fall within the scope of the VATP regime but the Hong Kong government expressed the need to regulate these activities.  

In a recent blog post, the Secretary for the FSTB alluded to the need to regulate VA OTC service providers (e.g., brokers, VA ATMs and other platforms that provide services for buying and selling VAs outside of an exchange).  This is in response to recent fraudulent schemes involving VA OTC service providers that channel retail investors’ funds to suspected fraudulent schemes or exchanges.

Scope of the VA OTC Licensing Regime

Under the proposed VA OTC licensing regime:

  • Any person who conducts a business of “provision of service of spot trade of any VA” in Hong Kong, or who actively markets1 the provision of such services to the Hong Kong public (whether in Hong Kong or elsewhere), must be licensed by the Commissioner of Customs and Excise (CCE), the same regulator that supervises the money services operator (MSO) regime.  The choice of regulator for this regime is somewhat of a surprise as the CCE has not previously regulated VAs or trading activities.
  • Any business activity that involves the provision of spot trading services of any VA in Hong Kong will be captured under the proposed regime, except peer-to-peer trading of VAs between individuals (unless the trading activity forms the business activity of either party).  The regime would also not cover a person who is not a party to the contract or binding transaction (e.g. online platforms, applications or instant messaging systems where the operator simply maintains a platform for posting/facilitating peer-to-peer trades).
  • The proposed regime will cover all VA OTC services, irrespective of whether such services are provided through a physical outlet (e.g., VA ATMs) and/or other platforms (e.g. online platforms).
  • The Consultation is unclear whether engaging in proprietary trading activities in respect of VAs will be covered under the proposed regime and whether exemptions will apply when a person deals in VAs as principal with professional investors or when a VA OTC service provider deals with institutional counterparties (such as market makers or funds, etc.).
  • To avoid regulatory overlap, SFC-licensed VATPs and licensed corporations and banks licensed by the Hong Kong Monetary Authority (HKMA) will be exempt from the proposed regime.

Who is eligible to apply for a VA OTC service provider licence?

A licence applicant must:

  • be a locally incorporated company with a permanent place of business in Hong Kong or a non-Hong Kong incorporated company with a branch registered in Hong Kong under the Companies Ordinance (Cap. 622);
  • identify suitable premises for its operations, whereas an applicant that operates an online platform must provide information on the address of a local management office, the correspondence address and a place for local storage of books and records; and
  • be fit and proper. 

Key regulatory requirements that will apply to licensed VA OTC service providers

  • Licensed VA OTC service providers would be permitted to provide VA-fiat spot trading services but not VA-VA spot trading services (providers of such services should apply for a VATP licence instead).  
  • A licensee can only offer services in respect of: (a) tokens that are accessible to Hong Kong retail investors for trading on at least one SFC-licensed VATP2; and (b) stablecoins issued by HKMA-licensed issuers under the proposed stablecoin licensing regime.  This onerous requirement will significantly limit the range of VAs that a licensee can deal with and taken together with the requirement that only VA-fiat spot trading is permitted, the licensee’s business will be limited further.
  • Provision of other services, including VA advisory or referral services, offering of VA derivatives or other VA-related products / services (e.g., staking, lending and margin lending) and custody services for clients VAs (unless it is temporary in nature and an indispensable part of the transaction process) would not be permitted.
  • Licensed VA OTC service providers can remit VA OTC transaction proceeds for clients on specified conditions.  To provide remittance services in respect of fiat money, a licensee will need a separate MSO licence.  Where the transfer of VAs to a client wallet is involved, the licensee would only be permitted to transfer VAs from its registered wallets to a wallet that has been verified to be owned/controlled by the client.
  • Licensed VA OTC service providers will be subject to the customer due diligence and record keeping requirements under Schedule 2 to AMLO. They will also be subject to other conduct and governance-related requirements such as the appointment of a compliance officer and money laundering reporting officer, possess knowledge and experience in VAs and have proper risk management measures, etc.
  • A VA OTC service provider licence will be valid for two years (and renewable for another two years on application).

Transitional arrangements under the proposed licensing regime

The transitional arrangement is intended to provide reasonably sufficient time for existing VA OTC service providers already carrying on business in Hong Kong to apply for a licence or cease its business in an orderly manner.  The FSTB is proposing a six-month transitional period upon the commencement of the proposed regime. 

A pre-existing VA OTC service provider would be permitted to continue its operations until the end of such period, provided that it submits a licence application to the CCE within the first-three months of the commencement of the proposed regime.  If the licence application is not submitted within the prescribed timeline, the pre-existing VA OTC service provider must close its business by the end of the fourth month of the commencement of the proposed regime.  At the end of the transitional period, all VA OTC service providers must be licenced by the CCE.

The FSTB is considering whether there should be a deeming arrangement so that an applicant meeting certain requirements specified by the CCE (Deeming Conditions) will be granted a “deemed licence”.  A “deemed licence” will allow the applicant to continue its operations beyond the transitional period and until a final determination of the licence application is made by the CCE.

No details have been provided in the Consultation regarding the meaning of a “pre-existing VA OTC service provider” and what the Deeming Conditions will involve.  However, we expect these to be similar to the transitional and deeming arrangements adopted in the VATP regime. For instance:

  • a “pre-existing VA OTC service provider” will likely be a service provider that has been carrying on business with a meaningful and substantial presence (i.e. carrying on a genuine business with genuine presence) in Hong Kong3 prior to the commencement date of the proposed regime; and
  • to satisfy the Deeming Conditions, the applicant will need to: (a) submit a VA OTC licence application within three months of the commencement of the proposed regime; (b) demonstrate that it is a “pre-existing VA OTC service provider”; and (c) agree that it will comply with, and have appropriate measures to comply with, the applicable regulatory requirements upon being deemed.

Next Steps

Feedback on the Consultation should be submitted by 12 April 2024.  The FSTB aims to introduce a bill on the proposed licensing regime into the Legislative Council as soon as practicable. 


  1. The term “active marketing” generally refers to unsolicited communications with and marketing activities targeting the Hong Kong public.
  2. As of the end of January 2024, licensed VATPs are providing trading in bitcoin and ethereum.
  3. The relevant factors for assessing whether a service provider is operating and carrying on a genuine business with a genuine presence in Hong Kong could include: (a) whether it is incorporated in Hong Kong; (b) whether it has a physical office in Hong Kong; and (c) whether its key personnel are based in Hong Kong, etc.