Hong Kong crafts crypto OTC derivative rules in accordance with European standards

Hong Kong financial regulators set requirements for crypto over-the-counter derivatives following the European Securities and Markets Authority standards, including the use of Digital Token Identifiers.

On Sept. 26, the Hong Kong Monetary Authority and the Securities and Futures Commission released a plan that would align their OTC reporting requirements with those of ESMA after studying responses to a consultation paper from March 2024. 

The HKMA and SFC propose that the mandatory use of Digital Token Identifiers for CTO derivatives reporting will start to take effect on Sept. 29, 2025.

The decision was made after regulators received feedback on the proposal from some Hong Kong stakeholders who recommended using DTIs “to unambiguously identify crypto-asset underliers for OTC derivatives.”

Hong Kong stakeholders and investors commented on the fact that they had a hard time placing OTC derivatives in any of the five traditional asset classes, which are interest rates, foreign exchange, credit, commodities and equities.

Therefore, Hong Kong regulators have decided to enforce reporting requirements to accommodate the use of DTI.

In the release, the HKMA and SFC cited that ESMA proposed and began implementing DTI in reporting as early as October 2023. Moreover, DTI currently serves as the core reference point for crypto asset service providers across Europe.

“To support reporting entities in transitioning to UTI, they may continue to report the existing trade identifiers of Unique Swap Identifier (USI) and Unique Trade ID (TID) as per the current reporting requirements, or report the UTI voluntarily, until the implementation date.”

The release also hints at cross-border collaboration with financial regulators from countries like Singapore, Australia and Japan “on a coordinated implementation plan for UTI in the Asia-Pacific
(APAC) region to ensure a smooth UTI adoption in Hong Kong”,

On Sept. 12, South China Morning Post reported that Hong Kong Customs and Excise Department were considering teaming up with the local Securities and Futures Commission in exploring a new licensing regulation for OTC crypto services.

Before the joint efforts, the C&ED were the only ones regulating OTC services. While the SFC has been consulting industry players about the potential new regime and evaluating regulations for cryptocurrency custodian services.