Concerns and Regulatory Prospects of Virtual Asset Trading in Hong Kong

As an international financial center, Hong Kong has long established a prosperous cryptocurrency economic ecosystem. Offline stores and virtual asset over-the-counter trading service providers (VAOTC) in the form of online groups, along with virtual asset trading platforms (VATP), jointly provide investors with token exchange and deposit/withdrawal services, forming a unique cryptocurrency ecosystem in Hong Kong.

However, the anonymity and cross-border characteristics of blockchain technology have also provided convenience for criminals. In particular, stablecoins have become tools for money laundering and other illegal activities, polluting the cryptocurrency ecosystem in Hong Kong and bringing legal risks to operators and investors.

A recent incident involving a mainland university student related to money laundering has caught people's attention. The student received a so-called "part-time job" on a second-hand trading platform, where they were asked to go to Hong Kong to purchase USDT and transfer funds. This behavior is actually part of the "card connection back to U" style of money laundering, which is related to Southeast Asian criminal networks.

Through blockchain analysis, it can be traced that the funds ultimately flowed to a collateral platform related to illegal activities in Southeast Asia. This reveals an industrialized money laundering network that uses cryptocurrency exchange shops in Hong Kong for fund laundering. In just three months, a money laundering gang illegally laundered over $310,000 in this manner, while the actual scale may be even larger.

In response to this situation, Hong Kong regulators are intensifying the formulation of relevant regulations. The Financial Services and the Treasury Bureau has proposed introducing a licensing system for OTC traders through the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. This will require all virtual asset over-the-counter trading service providers to apply for licenses from Hong Kong Customs and to strictly comply with regulations such as anti-money laundering and customer identity verification.

For the VAOTC industry, it is crucial to actively respond to the upcoming regulatory changes. Operators need to establish a comprehensive internal compliance system, strengthen communication with regulatory agencies, and participate in industry self-regulation. It is particularly important to firmly reject any association with illegal funds by identifying and resisting suspicious capital flows through rigorous customer due diligence and transaction monitoring.

The upcoming OTC compliance policies in Hong Kong provide the industry with an opportunity for standardized development. Operators should seize this opportunity to improve compliance levels and enhance competitiveness in order to achieve long-term stable growth in this dynamic market.