In May 2025, Hong Kong police dismantled a virtual asset money laundering group worth $15 million (approximately HK$117 million), with the involved group mainly splitting and transferring funds through OTC channels located in Tsim Sha Tsui.
Earlier, in the high-profile JPEX case, the Commercial Crime Bureau (CCB) disclosed that many involved funds were exchanged and transferred through OTC shops in Hong Kong, becoming a critical link in the fraud chain.
In June 2025, the Hong Kong government released the 'Legislative Proposal to Regulate Dealing in Virtual Assets' public consultation document, suggesting that all virtual asset trading services, including OTC, be incorporated into a unified licensing and regulatory framework. Although the proposal is currently in the consultation phase and has not yet become law, it clearly outlines the next steps for virtual asset regulation in Hong Kong - from early VATP platform licensing to coin shop management, and then to comprehensive coverage of VA Dealing services.
In one sentence: Within three years, Hong Kong's regulation will move from an OTC "vacuum zone" to full-chain management.
(Translation continues...)In the $15 million money laundering case in May 2025, the involved group used OTC to split funds and bypass bank monitoring, completing multiple cross-border transfers in a short time. In the JPEX case, the Commercial Crime Bureau (CCB) discovered that many investors' defrauded funds were converted to cash or stablecoins through local OTC shops and quickly transferred to overseas wallets.
These cases expose a problem: even with platform regulation tightened, the anonymous and instant settlement characteristics of offline OTC can still circumvent regulation, becoming a "last mile" risk channel.
Driver Two: International Regulatory Pressure and FATF Standards
Since updating Recommendation 15 in 2019, FATF has clearly required all jurisdictions to fully incorporate Virtual Asset Service Providers (VASPs) into the AML/CFT framework. While Hong Kong initially satisfied some FATF requirements when introducing VATP licensing, the "uncovered" status of OTC business was repeatedly pointed out by international assessment agencies and partners. To maintain Hong Kong's international financial center reputation, regulators must fill this loophole and ensure "same business, same risk, same rules" is truly implemented.
To become an international virtual asset center, Hong Kong must address AML/CFT concerns.
Driver Three: Local Public Opinion Driving Policy Upgrade
In the first OTC consultation round in 2024, the government received over 70 written public opinions from banks, compliance institutions, crypto enterprises, and law enforcement agencies. Most opinions focused on: high anonymity risks in OTC transactions; difficulty tracking cross-border fund flows; OTC playing a crucial intermediary role in fraud and money laundering cases.
In the VA Dealing legislative proposal released in 2025, the government explicitly stated that based on these feedbacks, the original regulatory scope covering OTC conversion was expanded to a more comprehensive VA Dealing full-chain business.
VA Dealing Consultation Paper, 1.8：
「Following the conclusion of the first round of consultation, we received over 70 written submissions from various stakeholders… We have refined our proposal to expand the scope to VA dealing services to better address AML/CFT risks.」
Summary
OTC was once the "underground waterway" of Hong Kong's cryptocurrency market, and now it is being brought into the open. From platform regulation in 2023 to currency shop management in 2024, and the proposed full-chain "VA Dealing" framework in 2025, Hong Kong's virtual asset regulation is moving towards systematization and internationalization. The latest chapter of this process is currently in the public consultation period, awaiting the final legislative draft.
