Hong Kong Launches Digital Asset Regulation Consultation

The Hong Kong SAR Government has initiated a public consultation on over-the-counter (OTC) trading and digital asset custody services, effective from June 27, 2025. This move is aimed at aligning the region's digital asset regulations with international standards, thereby enhancing investor confidence and attracting institutional participation. The consultation, which will remain open until August 29, 2025, seeks to develop a robust regulatory framework that addresses key topics related to digital asset OTC trading and custody services.

Wu Chi-wai, a prominent figure in the region's financial sector, announced the start of this consultation. The initiative is seen as a strategic move to enhance the region's position in the global digital market. Industry leaders, including CEO Deng Chao, have emphasized the importance of aligning with global anti-money laundering standards. This effort is viewed as necessary to legitimize the region’s digital asset framework and to foster innovation while ensuring investor protection and regulatory adherence.

The push for stricter digital asset regulations in the region was prompted by the 2023 JPEX fraud, which involved a significant amount of money. This incident highlighted the need for more stringent regulations to prevent similar occurrences in the future. The consultation process will involve various stakeholders, including financial institutions, digital asset service providers, and industry experts, to ensure that the regulatory framework is comprehensive and effective.

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) are leading this effort to establish a comprehensive regulatory framework for digital asset custodians, OTC providers, and bank-related digital asset activities. The consultation process will focus on several key areas, including the licensing and supervision of digital asset custodians, the regulation of OTC trading activities, and the oversight of bank-related digital asset services. The authorities will seek input on the appropriate regulatory standards and requirements for these activities, as well as the potential risks and challenges associated with digital asset transactions.

The consultation will also explore the role of technology in enhancing the security and efficiency of digital asset transactions, and the potential for regulatory sandboxes to facilitate innovation in the digital asset space. The public consultation is a significant step towards cementing the region's role as a global hub for digital asset innovation. By providing a clear regulatory framework, the authorities hope to attract more digital asset businesses and investors to the region, further enhancing its position in the global digital asset ecosystem.