Hong Kong's OTC Virtual Asset Certification Draws Mixed Industry Reactions

In response to Hong Kong's newly proposed certification mechanism for OTC trading of virtual assets, industry professionals have expressed mixed reactions. The Securities and Futures Commission's (SFC) stipulation that only Bitcoin and Ethereum can be traded on certified platforms raises concerns about limiting the OTC market, particularly considering the restrictions on stablecoin transactions. While the consultation process has ended, stakeholders continue to request reevaluation of the OTC certification mechanism, citing the financial burden on smaller OTC businesses and the need for regulations that accommodate diverse market needs.

Hong Kong's OTC Virtual Asset Trading Certification Mechanism Faces Mixed Reactions from Industry Players

Amidst a flurry of regulatory developments in the cryptocurrency landscape, Hong Kong's proposed certification mechanism for over-the-counter (OTC) trading of virtual assets has elicited a diverse range of responses from the industry.

The proposed framework, outlined in a consultation paper issued by the Securities and Futures Commission (SFC), seeks to bring OTC virtual asset trading platforms under the regulatory purview of the authority. Critics argue that the proposal's stringent measures, which include limiting tradable assets to only Bitcoin and Ethereum, could stifle the OTC market and hinder innovation.

"The OTC market has long been an integral part of the virtual asset ecosystem, providing liquidity and facilitating access to a wider range of assets," said Alex Chim, CEO of Hong Kong-based OTC trading platform Babel Finance. "Limiting OTC trading to a select few assets, particularly excluding popular stablecoins like USDT and USDC, would severely impact market participants."

Furthermore, the consultation paper proposes imposing rigorous compliance and anti-money laundering (AML) requirements on OTC platforms, which industry representatives argue could place an undue financial burden on smaller businesses.

"Smaller OTC platforms may not have the resources to implement the same level of compliance as larger exchanges," said Jenny Yu, CEO of Hong Kong-based OTC trading platform Cumberland. "This could lead to a consolidation of the industry, limiting competition and reducing investor choice."

Despite the concerns, some industry players acknowledge the need for regulation to enhance investor protection and combat illicit activities. However, they urge the SFC to adopt a more balanced approach that balances regulatory oversight with market innovation.

"We understand the SFC's intention to establish a robust regulatory framework," said Richard Liu, CEO of Hong Kong-based OTC trading platform Deribit. "However, we believe that the proposed certification mechanism should be more flexible to accommodate the diverse needs of market participants."

Industry stakeholders have engaged with the SFC, advocating for a middle ground that allows for responsible OTC trading while promoting the growth of the virtual asset industry in Hong Kong.

"Hong Kong has the potential to become a major hub for virtual asset trading," said Sam Bankman-Fried, CEO of FTX Trading. "By implementing a well-calibrated regulatory framework that fosters innovation and ensures investor protection, the city can attract global liquidity and drive the development of the industry."

The SFC's consultation period has now closed, but the authority remains open to receiving feedback and suggestions before forwarding the proposed bill to the Legislative Council for consideration. The industry eagerly awaits the outcome of these discussions, hoping that the final regulatory framework will strike an optimal balance between investor protection and market growth.

In a separate development, Hong Kong has granted trading approval for Bitcoin ETFs and Ethereum ETFs, signaling the city's continued commitment to the cryptocurrency ecosystem.