In three years, Hong Kong's regulation has shifted from the OTC 'vacuum zone' to full-chain management. This article originates from a piece written by BlockSec, organized, translated, and authored by Foresight News. (Background: Regulatory crackdown! Hong Kong fully regulates cryptocurrency OTC dealers: unlicensed operations can face up to 7 years in prison and fines of 5 million HKD.) (Background information: Hong Kong passes the Stablecoin Bill: issuers must apply for a license, the next step is regulating OTC trading and cryptocurrency custody.) In May 2025, the Hong Kong police dismantled a money laundering group involving virtual assets worth 15 million USD (approximately 117 million HKD), with the gang primarily splitting and transferring funds through OTC channels located in Tsim Sha Tsui. Earlier, in the sensational JPEX case that shocked Hong Kong, the Commercial Crime Bureau (CCB) revealed that a significant amount of the involved funds was exchanged and transferred through OTC shops in Hong Kong, becoming a crucial part of the fraud chain. In June 2025, the Hong Kong government released a public consultation document (Legislative Proposal to Regulate Dealing in Virtual Assets), proposing to include all virtual asset trading services, including OTC, under a unified licensing regulatory framework. Although this proposal is still in the consultation stage and has not yet formed regulations, it outlines a clear blueprint for the next steps in Hong Kong's virtual asset regulation—from the early VATP licensing of platforms to the regulation of coin shops, and finally to comprehensive coverage of VA dealing services. In short: in three years, Hong Kong's regulation has shifted from the OTC 'vacuum zone' to full-chain management. Phase One (2023) VATP included in regulation, but OTC remains 'a fish that slipped through the net.' At the end of 2022, Hong Kong passed the (Amendment) Ordinance on Anti-Money Laundering and Counter-Terrorist Financing, which will implement a licensing system for virtual asset trading platforms (VATP) starting June 2023, regulated by the Securities and Futures Commission (SFC). VA Dealing Consultation Paper, 1.3 "In December 2022, … a licensing regime for VA trading platforms ("VATPs") … commenced operation in June 2023 … must be licensed by the SFC unless otherwise permitted by the law." VA exchange is defined as: Virtual asset transactions that match buyers and sellers through electronic means; Engaging with customer assets (holding, controlling, or arranging custody). Therefore, the system at that time only targeted businesses that involved 'electronic platforms + engaging with customer assets,' and physical coin shops, counters, ATMs, and other OTC scenarios were not included, leading to a regulatory vacuum. Phase Two (2024) Customs licensing, cryptocurrency OTC also requires licensing. From February to April 2024, the Financial Secretary and the Treasury Bureau (FSTB) launched the first round of consultation on the (Licensing Regime for Virtual Asset OTC Trading Services), officially including physical OTC under regulation for the first time. Main content: All persons operating virtual asset spot trading (physical or online) in Hong Kong must be licensed; Licensing will be overseen by Hong Kong Customs (CCE); Covering fiat currency exchanges and transfers such as USDT, BTC; VA Dealing Consultation Paper, 1.6(a)-(b): "Scope and coverage: Any person … services of spot trade of any VAs … would have to be licensed by the Commissioner of Customs and Excise ("CCE"). Eligibility: A licensee would be required to be a locally incorporated company …" Phase Three (2025) OTC incorporated into the VASP family, SFC unified regulation. In June 2025, Hong Kong released the second round of (Legislative Proposal to Regulate Dealing in Virtual Assets), with both the scope and depth of regulation upgraded: Expanded scope package: covering large transactions, brokerage matching, settlement exchanges, asset management, and other complex services; Regulatory agency adjustments: licensing by SFC, and HKMA overseeing banking/SVF businesses; Principles continued: same business, same risk, same rules; Exemption arrangement: Only issuers that issue/redemption stablecoins in the primary market and have obtained HKMA approval can be exempted. VA Dealing Consultation Paper, 1.10: "Under the proposed regime, any person … providing the VA service of dealing in any VAs in Hong Kong is required to be licensed by or registered with the SFC… including conversion, brokerage, block trading…" Reason for change: This round of proposals was formulated based on over 70 written opinions received from the first round of consultations, and the government explained in the documents that the opinions concentrated on issues such as the high-risk nature of OTC, cross-border money laundering loopholes, and insufficient regulatory coverage, thus expanding the original OTC regulatory proposal into a broader 'VA Dealing' framework. VA Dealing Consultation Paper, 1.8: "Following the conclusion of the first round of consultation, we received over 70 written submissions from various stakeholders… We have refined our proposal to expand the scope to VA dealing services to better add...

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