Overview of cryptocurrency OTC commercial licenses: What are the differences in legal compliance in Hong Kong, the EU and the United States?

Authors of this article: Iris, Shao Jiayi

OTC merchants, as the core participant in the virtual asset market, focus on providing block trading platforms for high-net-worth clients, institutional investors and exchanges. Through a customized trading mechanism, OTC merchants can ensure that large-scale transactions are successfully completed without interfering with market prices, and provide customers with higher privacy, transaction security and liquidity guarantees.

Relevant data shows that in 2024, OTC trading volume increased by 106% year-on-year, reflecting a significant increase in market activity and industry demand for OTC. Among them, stablecoins dominate—about 95% of the transaction volume, and the annual transaction volume increased by 147%. In addition, from the perspective of market distribution, Europe dominated institutional OTC transactions, with demand accounting for 38.5%, followed by North America, Asia and the Middle East, each accounting for 15.4%.

However, as the market expands, OTC companies also face a series of compliance challenges.

OTC Compliance Challenge

The regulatory framework of the crypto industry is relatively loose compared to traditional financial markets, which makes OTC companies face compliance uncertainty in different regions around the world. Although the global regulatory environment is gradually tightening, especially in areas such as anti-money laundering (AML) and customer identity verification (KYC), OTC companies still need to deal with changing legal and regulatory requirements.

At the same time, OTC's business model requires them to handle bulk transactions that usually do not disclose market prices, increasing the risk of market manipulation and information asymmetry. In the absence of transparent prices, OTC companies need to take additional measures to ensure the fairness of transactions and price stability, and avoid the market being artificially affected.

In addition, OTC dealers often participate in cross-border transactions, and then face regulatory requirements from different legal regions. The differences in regulatory standards in various regions make OTC businesses need to continuously adjust their compliance strategies when conducting international business to ensure that their businesses comply with legal provisions in different markets. Especially in terms of data protection and privacy policies, the complexity of cross-border compliance greatly increases the compliance risks of OTC providers.

Against this background, OTC commercial licenses have become particularly critical.

By obtaining a legal license, OTC companies can not only ensure that they comply with local legal requirements, but also enhance their credibility and market competitiveness in an increasingly strict market environment.

Current status of OTC commercial licenses

However, looking at countries and regions around the world, the regulatory framework for OTC vendors has not yet been completely unified. Despite this, the countries and regions where OTC mainly operates, such as Hong Kong, the EU, and the United States, have also successively formulated relevant legislation and license matters.

Next, lawyers Mankun will sort out the legislative status of these regions one by one and explore their OTC business licenses and their respective compliance requirements.

1. Hong Kong: OTC business regulation legislation

The Hong Kong Financial Services and Treasury Bureau (FSTB) issued a legislative consultation document on virtual asset over-the-counter trading (OTC) services in February 2024, proposing a proposal to introduce the OTC business license system through the Anti-Money Laundering and Terrorist Funding Ordinance (AMLO). This legislative framework is expected to be introduced soon.

Under the proposal, Hong Kong plans to introduce a license system for OTC merchants through the Anti-Money Laundering and Terrorist Funding Ordinance (AMLO) to ensure that these companies comply with compliance requirements such as Anti-Money Laundering (AML) and Customer Identity Verification (KYC). All companies that provide virtual asset OTC trading services, including OTC merchants, must apply for relevant licenses from the Hong Kong Customs (CCE) and strictly abide by these laws and regulations. As of April 2025, the legislation is still in the consultative stage, and the specific implementation details and the time of entry into force are still to be announced by the government.

This framework requires OTC providers to meet the following core compliance requirements:

• Anti-money laundering (AML) and customer identity verification (KYC)

Licenses require OTC to implement strict anti-money laundering and customer identity verification policies to ensure that their transactions are not used for illegal funding flows, money laundering or funding terrorist activities. OTCs must perform risk-based customer due diligence (CDD) procedures, especially when handling bulk transactions, for identity verification and transaction monitoring. Each transaction requires customer identification and reports when suspicious activity is discovered.

• Compliance Document Requirements

OTC companies are required to submit detailed compliance documents to regulators, including their anti-money laundering policies, customer identity verification procedures, risk management measures, etc. These documents will be used to prove that the OTC has taken the necessary measures to comply with relevant anti-money laundering and customer protection regulations.

• Continuous supervision and compliance supervision

Hong Kong Customs will be responsible for the ongoing supervision of OTC providers to ensure that they comply with all relevant anti-money laundering regulations and to regularly review their compliance. Especially in terms of bulk transactions and market transparency, Hong Kong Customs will strengthen compliance supervision of OTC merchants to ensure that their trading activities are legal and transparent.

2. EU: MiCA Act

The EU's MiCA Act provides a unified regulatory framework that covers crypto asset service providers (CASPs) including over-the-counter trading (OTC) vendors. Although MiCA does not set up a 'OTC vendor' category separately, it is required to register as a CASP if it engages in the crypto service type defined by MiCA (such as order execution, transaction matching or asset custody). Under the bill, OTC companies in the EU only need to obtain a crypto asset service provider (CASP) license in one member country to operate throughout the European Economic Area (EEA)

At the same time, OTC companies also need to comply with higher compliance requirements established by the bill, especially in the following core aspects:

• Anti-money laundering (AML) and customer identity verification (KYC)

MiCA requires OTC companies to implement strict anti-money laundering (AML) and customer identity verification (KYC) policies to ensure that their transactions are not used for illegal funding flows, money laundering or funding terrorist activities. OTCs must perform risk-based customer due diligence (CDD) procedures, especially in bulk transactions, for strict identity verification and transaction monitoring. In particular, for each transaction, OTC needs to identify and verify the customer and report when suspicious activity is discovered.

• Compliance Document Requirements

OTC companies are required to submit compliance documents to regulators including anti-money laundering policies, risk management measures, capital requirements, etc. to prove that they have taken measures to comply with MiCA's requirements. In addition to the AML/KYC policy, MiCA also requires OTC providers to establish an effective risk management framework to prevent market manipulation, price fluctuations and systemic risks, and ensure the transparency and stability of their operations.

• Virtual Asset Issuance, Transaction and Custody

MiCA not only involves transaction compliance requirements for OTC providers, but also expands to the issuance and custody of crypto assets. Issuers, trading platforms and OTC providers of crypto assets must comply with market transparency requirements and issue sufficient risk disclosure to avoid causing harm to investors. OTC companies need to ensure transparency in their trading activities and prevent the impact of market prices and asset stability through opaque trading behavior.

• Cross-border compliance requirements

MiCA emphasizes cross-border compliance, which means that even if OTC companies operate outside the EU, they still need to comply with MiCA regulations. This requires OTC vendors to adopt consistent compliance measures in cross-border transactions, especially in anti-money laundering and consumer protection. As there may be different legal requirements in the EU and elsewhere, OTC companies need to deal with compliance coordination issues between different legal domains, especially in terms of data privacy and legal conflicts, such as the strict requirements for data protection by the EU's GDPR.

3. United States: Regulatory diversification status

In the United States, there is currently no unified regulatory framework for OTC merchants (overseas traders). Therefore, the regulation of OTC vendors mainly depends on whether virtual assets are defined as securities and the type of business they are involved in.

US regulators such as the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Financial Crime Enforcement Network (FinCEN), are responsible for some of the regulatory responsibilities of OTC providers, and the specific requirements depend on the type of operation of the OTC provider and the nature of the virtual assets.

• SEC Regulation: If the virtual assets traded by an OTC merchant are considered securities, their transactions will be regulated by the Securities and Exchange Commission (SEC). The SEC determines whether virtual assets constitute securities based on the Howvey test. If a virtual asset is defined as a securities, the OTC will be required to comply with the provisions of the Securities Law, may be required to register as a securities broker, and subject to corresponding regulatory requirements. Assets that do not meet the definition of securities are not subject to the SEC.

• Financial Crime Enforcement Network (FinCEN): If an OTC business is identified as engaging in monetary services, it must also register with the Financial Crime Enforcement Network (FinCEN) and comply with anti-money laundering (AML) and anti-terrorist financing (CFT) regulations. OTC companies are required to fulfill their suspicious transaction reporting obligations and implement client due diligence (CDD) procedures to ensure that their business complies with the financial crime prevention and control requirements in the United States.

• CFTC regulation: For OTC vendors involving virtual asset futures and derivatives, the Commodity Futures Trading Commission (CFTC) may intervene in regulation. The CFTC treats certain virtual assets, such as Bitcoin, as commodities, so related futures contracts and derivatives trading will be regulated by it.

However, at the state level, the BitLicense system in New York state provides a dedicated regulatory framework for OTC vendors. Under the BitLicense system, any company that provides virtual currency-related services in New York State, including OTC, must obtain a BitLicense license. The core contents of this license system include:

• Anti-money laundering (AML) and customer identity verification (KYC) requirements ensure that OTC companies strictly comply with financial crime prevention and control regulations.

• Capital adequacy ratio requirements ensure that OTC companies maintain necessary financial stability during their operations.

• Reporting and compliance, OTCs are required to submit operational and financial reports to regulators regularly to ensure that their activities comply with regulations.

Therefore, when OTC operators operate in New York State, they must meet all compliance requirements of BitLicense. This also means that for OTC operators operating across states, in addition to federal level regulation, different regulatory requirements that each state must also be considered.

Mankun Lawyer Compliance Advice

By comparing the regulatory systems in Hong Kong, the EU and the United States, we can see that there are significant differences in the OTC business license system in different regions. Therefore, OTC businessmen need to pay special attention to these differences and make corresponding adjustments when operating globally:

• Hong Kong: The license system is still being formulated, and it is expected to be similar to VASP licenses, focusing on anti-money laundering and KYC, as well as ensuring the transparency and legality of capital flows in bulk transactions.

• EU: The MiCA Act focuses on cross-border compliance and market transparency, especially in global operations, where OTC companies need to ensure compliance with EU strict regulations on market transparency, investor protection and consumer rights.

• United States: Regulation is diversified but focuses on local management, and the regulatory differences in different states bring additional compliance costs to OTC operators operating across states.

Therefore, given the differences in regulatory systems across regions, OTC companies need to adopt flexible compliance strategies when operating globally to ensure that they can adapt to legal requirements in different regions and effectively avoid compliance risks. for example:

1. Establish a cross-regional compliance team

OTC providers should consider setting up a dedicated compliance team in major operating areas, responsible for in-depth understanding and tracking local regulatory changes. Especially in the United States, since each state has different compliance requirements, setting up a local compliance team can help OTC companies respond to specific regional regulatory requirements and ensure compliance with cross-state operations.

2. Formulate a globally unified KYC/AML compliance policy

Despite the different specific requirements in different regions, OTC companies can still formulate a global unified anti-money laundering (AML) and customer identity verification (KYC) compliance framework, based on this, to adjust according to specific regulations in different regions.

3. Strengthen customer due diligence (CDD) and background checks

Implement strict customer due diligence (CDD) procedures worldwide, especially in regions such as the EU and the United States, ensuring the legitimacy, transparency of all customer information and conducting necessary background checks. This not only complies with KYC requirements, but also helps OTC companies avoid potential risks caused by non-compliant customers.

4. Strengthen transaction monitoring and compliance review

OTC providers should use advanced transaction monitoring systems to track and detect potential market and price manipulation behaviors in real time, especially when the crypto market is less transparent. These systems can help OTC companies ensure fairness and transparency in bulk transactions and ensure compliance with regional response mechanisms to market manipulation.

5. Regularly conduct cross-border compliance training and audits

As the global regulatory environment changes, OTC providers should conduct regular cross-border compliance training to ensure employees are aware of the latest regulatory requirements and compliance procedures in different regions. At the same time, regular internal compliance audits are conducted to evaluate the effectiveness of existing compliance measures and ensure that operations around the world comply with local laws and regulations.