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What are the differences in Crypto Assets legal Compliance between Hong Kong, the EU, and the United States?
OTC traders, as core participants in the virtual asset market, focus on providing Block Trading platforms for high-net-worth clients, institutional investors, and exchanges. Through customized trading mechanisms, OTC traders can ensure that large-scale transactions are completed smoothly without disrupting market prices, while providing clients with higher privacy, transaction security, and Liquidity assurance.
According to relevant data, in 2024, the OTC trading volume increased by 106% year-on-year, reflecting a significant rise in market activity and industry demand for OTC. Among this, stablecoins dominate—accounting for approximately 95% of the trading volume, with an annual trading volume growth of 147%. Additionally, in terms of market distribution, Europe dominates the institutional OTC trading, with a demand share of 38.5%, followed by North America, Asia, and the Middle East, each accounting for 15.4%.
However, as the market expands, OTC traders also face a series of compliance challenges.
OTC Business Compliance Challenges
The regulatory framework of the cryptocurrency industry is relatively loose compared to traditional financial markets, which creates compliance uncertainties for OTC traders in different regions around the world. Although the global regulatory environment is gradually tightening, especially in areas such as Anti-Money Laundering (AML) and Know Your Customer (KYC), OTC traders still need to cope with changing legal and regulatory requirements.
At the same time, the business model of OTC traders requires them to handle Block Trading, which typically does not disclose market prices, increasing the risks of market manipulation and information asymmetry. In the absence of transparent pricing, OTC traders need to take additional measures to ensure the fairness of transactions and price stability, avoiding human influence on the market.
In addition, OTC merchants often participate in cross-border trading, thus facing regulatory requirements from different jurisdictions. The differences in regulatory standards across regions require OTC merchants to continuously adjust their compliance strategies when conducting international business to ensure that their operations comply with legal regulations in different markets. Particularly in terms of data protection and privacy policies, the complexity of cross-border compliance significantly increases the compliance risks for OTC merchants.
In this context, OTC merchant licenses have become particularly crucial.
By obtaining a legal license, OTC merchants can not only ensure their compliance with local legal requirements but also enhance their credibility and market competitiveness in an increasingly stringent market environment.
Current Status of OTC Business Licenses
However, looking at various countries and regions around the world, the regulatory framework for OTC merchants has not yet been fully unified. Nevertheless, countries and regions where OTC primarily operates, such as Hong Kong, the European Union, and the United States, have gradually established relevant legislation and licensing matters.
Next, Attorney Mankun will systematically outline the legislative status of these regions and explore their requirements for OTC merchant licenses and respective compliance.
1. Hong Kong: OTC Business Regulatory Legislation
The Hong Kong Financial Services and the Treasury Bureau (FSTB) released a legislative consultation document on virtual asset over-the-counter (OTC) services in February 2024, proposing the introduction of an OTC merchant license system through the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). It is expected that this legislative framework will be introduced soon.
According to the proposal, Hong Kong plans to introduce a licensing system for OTC traders through the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) to ensure that these companies comply with anti-money laundering (AML) and know your customer (KYC) requirements. All companies providing virtual asset OTC trading services, including OTC traders, must apply for the relevant licenses from the Hong Kong Customs and Excise Department (CCE) and strictly adhere to these legal regulations. As of April 2025, the legislation is still in the consultation phase, and specific implementation details and effective dates are yet to be announced by the government.
This framework requires OTC merchants to meet the following core compliance requirements:
Licensing requirements mandate that OTC traders implement strict anti-money laundering and customer identification verification policies to ensure that their trading activities are not used for illegal fund flows, money laundering, or financing of terrorism. OTC traders must execute risk-based Customer Due Diligence (CDD) procedures, especially when handling Block Trading, to perform identification verification and transaction monitoring. Each transaction requires customer identification, and any suspicious activities must be reported.
OTC traders are required to submit detailed compliance documents to regulatory authorities, including their anti-money laundering policies, customer identification verification procedures, risk management measures, and more. These documents will be used to demonstrate that OTC traders have taken the necessary steps to comply with relevant anti-money laundering and customer protection regulations.
The Hong Kong Customs will be responsible for the ongoing supervision of OTC traders to ensure compliance with all relevant anti-money laundering regulations and to regularly review their compliance. In particular, with regard to Block Trading and market transparency, the Hong Kong Customs will strengthen compliance oversight of OTC traders to ensure their trading activities are legal and transparent.
2. EU: MiCA legislation
The EU's MiCA legislation provides a unified regulatory framework covering crypto asset service providers, including over-the-counter (OTC) traders (CASP). Although MiCA does not establish a separate category for 'OTC traders', if they engage in types of crypto services defined under MiCA (such as order execution, trade matching, or asset custody), they must register as a CASP. According to the legislation, OTC traders within the EU only need to obtain a crypto asset service provider (CASP) license in one member state to operate throughout the European Economic Area (EEA).
At the same time, OTC merchants also need to comply with the higher compliance requirements set by the legislation, especially in the following core areas:
MiCA requires OTC traders to implement strict Anti-Money Laundering (AML) and Customer Identity Verification (KYC) policies to ensure that their trading activities are not used for illicit money flows, money laundering or terrorist financing. OTC dealers are required to carry out risk-based customer due diligence (CDD) procedures, especially in the case of large transactions, with strict identity verification and transaction monitoring. In particular, for each transaction, OTCs need to identify and verify customer identities and report suspicious activity when it is detected.
OTC merchants are required to submit compliance documents to regulatory authorities that include anti-money laundering policies, risk management measures, capital requirements, and other content to demonstrate that they have taken steps to comply with MiCA's requirements. In addition to AML/KYC policies, MiCA also requires OTC merchants to establish an effective risk management framework to guard against market manipulation, price volatility, and systemic risks, ensuring the transparency and stability of their operations.
MiCA not only involves the trading compliance requirements of OTC merchants but also extends to the issuance and custody services of crypto assets. Issuers of crypto assets, trading platforms, and OTC merchants must comply with market transparency requirements, providing sufficient risk disclosures to avoid harming investors. OTC merchants must ensure the transparency of their trading activities to prevent opaque trading behaviors from affecting market prices and asset stability.
MiCA emphasizes cross-border compliance, meaning that even if OTC traders operate outside the European Union, they still need to comply with MiCA regulations. This requires OTC traders to adopt consistent compliance measures in cross-border transactions, especially regarding anti-money laundering and consumer protection. As there may be different legal requirements in the EU and other regions, OTC traders need to address compliance coordination issues across different jurisdictions, particularly in terms of data privacy and legal conflicts, such as the strict requirements imposed by the EU's GDPR on data protection.
3. United States: Current Status of Decentralized Regulation
In the United States, there is currently no unified regulatory framework specifically for OTC traders (over-the-counter traders). Therefore, the regulation of OTC traders mainly depends on whether virtual assets are defined as securities and the types of business they are involved in.
Regulatory agencies in the United States, such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN), are responsible for certain regulatory duties of OTC traders, with specific requirements depending on the type of operation of the OTC traders and the nature of the virtual assets.
However, at the state level, New York's BitLicense system provides a dedicated regulatory framework for OTC traders. Under the BitLicense system, any company providing virtual currency-related services in New York, including OTC traders, must obtain a BitLicense. The core content of this licensing system includes:
Therefore, when OTC traders operate in New York State, they must comply with all the requirements of the BitLicense. This also means that for OTC traders operating across state lines, they must consider the potential different regulatory requirements of each state in addition to federal regulations.
Mankun Lawyer Compliance Recommendations
By comparing the regulatory systems of Hong Kong, the EU, and the United States, we can see significant differences in the OTC merchant licensing system across different regions. Therefore, OTC merchants need to pay special attention to these differences and make corresponding adjustments when operating globally:
Therefore, given the differences in regulatory systems across regions, OTC traders need to adopt flexible compliance strategies when operating globally to ensure they can adapt to the legal requirements of different regions and effectively mitigate compliance risks. For example:
1. Establish a cross-regional compliance team
OTC merchants should consider establishing dedicated compliance teams in their main operating regions to gain a deep understanding of and keep track of local regulatory changes. Particularly in the United States, where compliance requirements vary by state, establishing local compliance teams can help OTC merchants address the regulatory requirements of specific areas and ensure compliance across state lines.
2. Establish a globally unified KYC/AML compliance policy
Although the specific requirements vary by region, OTC merchants can establish a globally unified Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance framework, which can then be adjusted based on the specific regulations of different regions.
3. Strengthen customer due diligence (CDD) and background checks
Implement strict Customer Due Diligence (CDD) procedures globally, especially in regions such as the EU and the US, to ensure the legality and transparency of all customer information and to conduct necessary background checks. This not only complies with KYC requirements but also helps OTC traders avoid potential risks from non-compliant customers.
4. Strengthen exchange monitoring and compliance review
OTC traders should use advanced trading monitoring systems to track and detect potential market manipulation and price manipulation behaviors in real-time, especially in situations where transparency in the cryptocurrency market is low. These systems can help OTC traders ensure the fairness and transparency of Block Trading, and ensure compliance with the response mechanisms to market manipulation in various regions.
5. Regularly conduct cross-border compliance training and audits.
With the changes in the global regulatory environment, OTC merchants should regularly conduct cross-border compliance training to ensure that employees are aware of the latest regulatory requirements and compliance procedures in different regions. At the same time, regular internal compliance audits should be conducted to assess the effectiveness of existing compliance measures and ensure that operations worldwide comply with local laws and regulations.