FSTB’s Consideration for Regulating OTC Crypto Transactions: Why and What to Expect?


Recently the Financial Services and the Treasury Bureau (FSTB) of Hong Kong has indicated plans to scrutinize the regulation of over-the-counter (OTC) cryptocurrency transactions. This scrutiny comes as the city-state seeks to mitigate the potential risks associated with the growing virtual asset market.

The Current Landscape and Emerging Threats

OTC cryptocurrency transactions currently operate in a regulatory gray area, with many venues not requiring a license or any form of identification from participants. This gap in regulation presents a tangible threat, potentially facilitating money laundering and other financial crimes, which could undermine the integrity of Hong Kong’s financial systems and national security.

The FSTB is also taking into consideration the phenomenon of mainland Chinese investors using Hong Kong’s OTC facilities to sidestep China’s ban on cryptocurrency trading. This cross-border regulatory arbitrage poses enforcement challenges and exacerbates the risk of unchecked market expansion, increasing systemic vulnerabilities.

Recent arrests involving OTC staff in Hong Kong using counterfeit banknotes in a crypto exchange store also underscore the urgency for enhanced regulation. Without proper oversight, these venues may inadvertently mislead investors about the safety and legitimacy of their services, leaving them exposed to fraud and lacking in investor protection measures.

Hong Kong’s Cryptocurrency Climate and the Push for Regulation

Despite mainland China’s strict regulations, Hong Kong has maintained a comparatively open stance toward cryptocurrencies. The SFC’s recent regulations on the issuance of Bitcoin ETFs reflect the city’s recognition of the demand for such virtual assets.

The FSTB’s proposed regulations aim to address risks by increasing transparency and protecting consumers within the OTC cryptocurrency market. Expected regulatory measures likely include:

Consumer Protection: Enforcing KYC procedures to consistently verify customer identities and prevent illegal activities.

Market Integrity: Establishing a regulated OTC market to maintain market integrity, attract institutional investment, and ensure transparency and fairness.

International Standards Alignment: Harmonizing Hong Kong’s crypto regulatory framework with international financial centers to bolster its reputation as a secure and trustworthy financial hub.

Fraud Prevention: Implementing regulations to prevent fraudulent activities and safeguard investors from being channeled into unlicensed trading platforms.

Clarity and Confidence: Providing legal certainty and clear guidelines for OTC stores and their customers, fostering long-term industry growth and consumer trust.

Looking Forward

The FSTB’s movement toward regulating OTC crypto transactions marks a pivotal step in fortifying Hong Kong’s financial market infrastructure. In the balancing act of nurturing innovation and curtailing risk, these regulatory measures are not just a response to current issues but a proactive approach to shaping a resilient digital asset landscape. By aligning with global standards and reinforcing market integrity, Hong Kong is setting the stage to secure its position as a leading, forward-thinking financial center in the era of digital finance.


FSTB’s Consideration for Regulating OTC Crypto Transactions: Why and What to Expect? was originally published in The Dark Side on Medium, where people are continuing the conversation by highlighting and responding to this story.

FATF Travel Rules and UK Regulations: The New Era of Crypto Compliance


The UK’s adoption of the Financial Action Task Force (FATF) Travel Rule has signaled a new era of regulatory scrutiny for Virtual Asset Service Providers (VASPs). Effective from September 2023, this directive requires UK-based VASPs to engage in rigorous information collection and sharing for crypto asset transfers. What are the implications for the crypto industry, particularly the operational and compliance landscape being reshaped by the regulations?

Understanding the FATF Travel Rule

Designed to prevent money laundering and terrorist financing, the Travel Rule mandates that VASPs gather and exchange specific data about the participants in crypto transactions. This includes the collection of names, account details, and physical addresses. The rule also stipulates that this data be shared with recipient institutions during transactions and be retained for future reference to aid law enforcement.

The Rule applies globally, with implementation varying by jurisdiction. In the US, the threshold for compliance is set at $3,000, while the EU proposes a €1,000 benchmark. Under this framework, all transfers exceeding these thresholds necessitate that the originator VASP transmit relevant user information to the beneficiary VASP.

UK Regulations: Stringent Requirements Without Thresholds

The Financial Conduct Authority (FCA), the UK’s regulatory authority, has underlined the necessity for strict adherence to the Travel Rule. Unlike other jurisdictions, the UK does not apply a de minimis threshold, which means all crypto transfers, irrespective of size, must comply. This poses a significant compliance challenge for VASPs, as it demands the same level of due diligence for all transactions.

UK-based VASPs must now conduct risk assessments for transactions linked to regions or entities that do not observe the Travel Rule, adding to the operational burden. The challenge is amplified for foreign VASPs engaging with UK counterparts, who must ensure their processes align with UK standards or risk exclusion from the market.

Global Implications and the Path Ahead

The UK’s stringent approach could inspire similar regulatory rigor worldwide, advocating for a unified standard within the crypto industry. The intent is to fortify the security of international crypto transfers and diminish the risk of exploitation for unlawful activities.

Yet, the diversity in implementation across jurisdictions presents a formidable hurdle. The crypto ecosystem must strive for interoperable compliance solutions that respect the intrinsic decentralized nature of digital assets.

The FATF Travel Rule’s far-reaching impact on the fight against financial crime cannot be overstated. By addressing the vulnerabilities within virtual asset transactions, the Rule significantly strengthens global efforts to monitor and intercept illicit financial flows.

Balancing Regulation and Innovation

The crypto industry stands at a crossroads where fostering innovation must be carefully balanced against the new regulatory frameworks. The UK’s comprehensive enforcement of the FATF Travel Rule is a watershed moment, marking a significant stride towards integrating crypto assets firmly within the international financial system’s fabric.

For financial professionals and stakeholders within the crypto space, the challenge lies in deftly navigating the complexities of compliance while safeguarding the industry’s innovative pulse. The ability to meet these stringent regulatory requirements, alongside nurturing the sector’s growth, will be paramount in determining its trajectory.

Anticipated outcomes of the UK’s regulatory approach may include widespread adoption of these standards by VASPs with international operations, potentially marginalizing or creating barriers for entities in jurisdictions with less stringent implementations of the Travel Rule. Additionally, the use of unhosted wallets could face a decline as concerns over non-compliance and the intensive oversight required to facilitate such transfers may deter their usage.

These anticipated developments underscore the need for a responsive, forward-thinking approach that harmonizes regulatory compliance with the fundamental principles of autonomy and privacy. As the crypto sector evolves, it must advocate for and develop regulatory solutions that not only uphold the integrity of transactions but also respect the freedoms intrinsic to digital currencies.


FATF Travel Rules and UK Regulations: The New Era of Crypto Compliance was originally published in The Dark Side on Medium, where people are continuing the conversation by highlighting and responding to this story.

Stablecoins and CBDCs: A Summary of Key Differences


In 2023, significant strides were made in the realm of digital currencies, particularly with pilot programs demonstrating the issuance and adoption of Central Bank Digital Currencies (CBDCs), such as the eHKD. Prominent financial hubs in Asia, Singapore, and Hong Kong, have underscored their commitment to the regulatory oversight of stablecoins.

As we move into 2024 and beyond, the pace of digital currency transformation is expected to accelerate. It’s crucial for us to grasp the nuances of these digital currencies and the distinct roles they play within the financial ecosystem.

1. Governance


As a central bank liability, CBDCs are backed by the state, similar to traditional fiat currency, which could enhance trust and stability.

Stablecoins are not liabilities of a central bank; their value is tied to their backing assets, which can include fiat currencies, commodities, or algorithms.

Legal Status

CBDCs are mainly in pilot stages and not yet widely implemented across countries, with legal frameworks under development as central banks evaluate their potential.

Stablecoins are actively used and traded, with increasing legal clarity and regulatory frameworks being established to address concerns like depegging and reserve transparency.

Regulation & Issuance

CBDCs are exclusively issued by central banks, which centralize the governance process and maintain full control over monetary policy and currency distribution.

Stablecoins can be issued by a variety of regulated or unregulated entities, including private companies, and governance may be decentralized, shared among various stakeholders.

Geographic Adoption

CBDCs are generally designed for use within a specific country, with some having capabilities for international transactions, but focus remains on domestic applications.

Stablecoins are designed for global use, enabling seamless cross-border transactions and providing a digital currency option for international trade and remittances.

2. Technologies

Blockchain Type

CBDCs utilize private blockchains controlled by central banks, with access limited to authorized entities to ensure security and compliance.

Stablecoins operate on public blockchains that anyone can join or transact on, promoting inclusivity and wider accessibility.

Technology Infrastructure

CBDCs are more likely to use permissioned ledger technologies that are proprietary, allowing central banks to maintain strict control over the infrastructure and operations.

Stablecoins are built on various open-source technologies that promote innovation and interoperability, with no single entity controlling the infrastructure.


CBDCs would require wallets that are regulated by the central bank or government, potentially limiting the options for storage and management.

Stablecoins can be stored in a multitude of digital wallets, offering users flexibility in terms of how and where they manage their digital assets.

3. Trustworthiness

Value Stabilization

CBDCs’ value is inherently stable as they represent the nation’s currency and are subject to the same monetary policy as physical cash.

Stablecoins aim at maintaining stability by being pegged to other fiat currencies or stable assets, but the effectiveness of this peg can vary, especially whether and how they are regulated, introducing potential volatility.

Safety of Digital Money

CBDCs are viewed as safer due to central bank backing, offering a digital equivalent to cash with a high level of financial security.

Stablecoins’ safety depends on the issuer’s credibility, regulatory status, and the robustness of the underlying assets or algorithms used to maintain price stability.

Role in Financial System

CBDCs are intended to complement or replace physical cash, directly impacting monetary policy and financial stability.

Stablecoins act as a bridge between traditional finance and cryptocurrency markets, often used to mitigate the volatility common in other digital currencies.


Stablecoins and CBDCs: A Summary of Key Differences was originally published in The Dark Side on Medium, where people are continuing the conversation by highlighting and responding to this story.