In 2024, OTC (over-the-counter) traders are no longer the 'behind-the-scenes players' in the crypto industry, but are becoming the 'invisible protagonists' in driving the liquidity and high-net-worth services of the entire market. According to data, the annual growth rate of OTC trading volume reaches as high as 106%, with stablecoin trading volume accounting for as much as 95%. This not only indicates the increasing activity of the OTC market but also reflects the growing demand for the allocation of crypto assets among large funds.
However, as trading volumes increase, regulatory pressure is also escalating. Especially in the three major crypto hubs of Hong Kong, the EU, and the United States, the compliance challenges faced by OTC traders are becoming increasingly complex and regionally diverse.
OTC compliance is moving towards globalization, but regulation remains 'self-governing'.
OTC traders, leveraging their customized trading mechanisms, price protection capabilities, and high privacy, have long been the bridge for asset circulation among institutions, mining farms, and large holders. However, precisely because of their bulk and non-public trading characteristics, they have also attracted significant attention from policymakers. Cross-border capital flows, anonymous transactions, money laundering risks... these topics, which have long been under high-pressure regulation in traditional finance, remain 'high-risk areas' in the OTC market.
In the face of the rapid tightening of the global regulatory environment, for OTC traders to operate in compliance over the long term, obtaining the corresponding licenses is a key step towards capital credibility. At this point, it's necessary to understand the similarities and differences in the legal positioning, licensing requirements, and regulatory focus of OTC roles in major markets.
Behind these complexities of compliance, how to leverage platforms like Mlion.ai for data processing and risk monitoring has also become key to improving compliance efficiency.
1. Hong Kong: Entering the licensing era, regulations are about to 'land'.
In February 2024, the Hong Kong Financial Services and the Treasury Bureau released a legislative consultation document on the regulation of virtual asset OTC traders, proposing to establish a dedicated OTC trader licensing system through the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), which will be regulated by Hong Kong Customs (CCE).
The core of this regulatory framework lies in:
Mandatory KYC and AML systems: All customers must undergo risk assessment, identity verification, and transaction review, especially for large transactions that require additional monitoring;
Compliance document filing: Includes internal control systems, risk management policies, reporting processes, etc.;
Ongoing regulatory and review mechanisms: Hong Kong Customs will periodically conduct compliance checks on OTC traders.
Compared to the VASP (Virtual Asset Service Provider) licensing system in Hong Kong, the new system for OTC traders may maintain consistency in compliance rigor but will focus more on the transparency of large transactions and the money laundering risks of cross-border transactions.
Recommendation: If conducting business in Hong Kong, it is advisable for OTC traders to concurrently establish an AI-driven trading risk monitoring system. The real-time on-chain behavior analysis tools and KYC verification models provided by Mlion.ai can help quickly establish AML compliance modules.
2. European Union: The MiCA bill brings regulatory integration, with high thresholds but a clear path.
The MiCA bill, effective in 2024, unifies the licensing mechanism for Crypto Asset Service Providers (CASP) across the entire European Economic Area (EEA). Although there is no separate category for 'OTC traders', those engaged in related activities such as trade matching, asset custody, and order execution are all included under the CASP regulatory umbrella.
The compliance framework for OTC traders in the EU includes:
Embedding anti-money laundering and KYC policies into the trading process: Risk-based customer due diligence (CDD) must be executed, and trading activities must be continuously monitored.
Risk management mechanism requirements: Establish risk models to prevent market manipulation and abnormal pricing behavior.
Data privacy compliance: Must comply with data protection regulations such as GDPR to ensure the legality of user information and transaction data when used across borders.
"One application, valid throughout Europe": Registering in any member state allows access to the entire EEA region.
MiCA sets a more detailed compliance threshold, suitable for institutions with strong backend processing capabilities to participate. Its requirements for system stability and transparency have aligned with those of financial institutions.
Recommendation: If OTC traders wish to lay out in the EU, they should build a high-standard compliance data management system in advance and use Mlion.ai's data dashboard system for cross-chain monitoring and price stability modeling to comply with MiCA's requirements for market manipulation.
3. United States: Regulatory fragmentation at the federal level, state-level BitLicense becomes a focus.
The regulatory status of OTC traders in the United States can be described as a 'puzzle model': there is no unified federal framework, but multiple agencies each manage different parts.
SEC: If the traded assets are defined as securities, OTC traders must register as securities brokers and comply with federal securities laws;
FinCEN: If OTC traders are identified as money service businesses, they must register, implement AML/KYC systems, and submit suspicious transaction reports;
CFTC: If involved in trading commodity derivatives such as Bitcoin, they must accept commodity futures regulation.
In state-level regulation, New York's BitLicense system is the most mature and strict:
A BitLicense must be obtained to legally provide services in New York State;
Detailed capital preparation, compliance architecture, and risk control documents are required to be submitted;
Regularly report operational conditions and risk exposure, subject to ongoing supervision.
The compliance threshold in the United States is not high in terms of the license itself, but it is high in terms of regulatory coordination and the pressure of multiple declarations. Especially for OTC traders operating across states, entering each state may encounter different regulatory terms, greatly increasing compliance costs.
Recommendation: When laying out in the United States, track regulatory dynamics in each state through platforms like Mlion.ai, while using AI-assisted templates to generate the compliance reports required by each state to improve document processing efficiency and response speed.
Compliance is moving towards 'AI automation': A new paradigm for OTC traders has begun.
Whether it is the licensing legislative phase in Hong Kong, the pan-European compliance of MiCA, or the fragmented regulatory reality in the United States, the global compliance path for OTC traders is transitioning from 'legal compliance' to 'real-time monitoring + intelligent analysis'.
Under this trend, platforms like Mlion.ai, which possess on-chain data integration, sentiment monitoring, address behavior recognition, and AI strategy modeling capabilities, are becoming the new infrastructure for compliance teams.
For example:
Rapidly identify potential suspicious accounts and trading behaviors using its on-chain address analysis module;
Use AI-automated KYC/AML report templates to efficiently respond to regulatory agency inspections;
Utilize data dashboards and alert analysis systems to grasp the impact paths of policy changes in various countries on OTC trading in real-time.
Summary: The globalization of OTC is not about moving faster but about moving more steadily.
Global compliance is not just about completing paperwork; it is about establishing the ability to maintain a long-term dialogue with regulators. As the market continues to expand, compliance will become a part of the competitive edge for OTC businesses.
In such a market cycle, the ability to achieve multi-level coverage of trading compliance, data compliance, and structural compliance will determine the survival and growth space of OTC traders after policy reshuffling.
It is recommended that all OTC traders preparing for global operations introduce AI-assisted compliance and risk control models as early as possible, establishing a visual, traceable, and responsive compliance system on platforms like Mlion.ai to lay a solid foundation for the next stage of global expansion.
Disclaimer: The above content is for informational sharing only and does not constitute any investment advice!