Hong Kong Legislative Council member Wu Jiezhuang announced via social media that the Hong Kong Special Administrative Region government has opened public consultation regarding over-the-counter (OTC) digital asset trading and custody services. The consultation document outlines findings from the initial consultation phase and key discussion points for this second round. According to Wu, these services are critical for advancing Hong Kong’s digital asset ecosystem.
Key Consultation Focus Areas
- Regulatory Framework: Establishing clear guidelines for OTC trading platforms and custody providers
- Investor Protection: Measures to safeguard users of non-exchange digital asset services
- Operational Standards: Technical and security requirements for service providers
- Compliance Protocols: Anti-money laundering (AML) and counter-terrorist financing (CTF) procedures
Why This Matters
The consultation represents Hong Kong’s latest move to position itself as a regulated digital asset hub, distinguishing its approach from blanket prohibitions seen elsewhere. Wu emphasized that properly structured OTC markets could:
- Provide liquidity alternatives to exchange-traded digital assets
- Enable institutional participation through compliant channels
- Reduce risks associated with unregulated peer-to-peer trading
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FAQ: Understanding the Consultation
Q: Who can participate in the consultation?
A: Financial institutions, digital asset service providers, legal experts, and general public stakeholders.
Q: When will new regulations take effect?
A: Following analysis of consultation feedback—likely Q4 2025 for phased implementation.
Q: How does this differ from existing exchange regulations?
A: OTC trading typically involves bilateral negotiations rather than order books, requiring distinct oversight mechanisms.
Q: Will custody providers need licenses?
A: Yes, under proposed rules similar to those for traditional asset custodians.
Next Steps for Industry Participants
Entities currently offering OTC or custody services should:
- Review the consultation document (available here)
- Submit formal responses before the deadline
- Begin aligning operations with anticipated requirements
The government particularly seeks input on:
- Appropriate capital reserves
- Client asset segregation
- Cybersecurity standards
- Dispute resolution frameworks
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