Hong Kong is reportedly considering involving the local securities regulator in licensing over-the-counter crypto trading services.

Over-the-counter crypto trading services in Hong Kong might soon come under the joint oversight of the Securities and Futures Commission and the Customs and Excise Department, as the city seeks to tighten its regulatory framework.

According to a South China Morning Post report, which cites persons familiar with the matter, the SFC is exploring a new licensing regime for OTC crypto services, working alongside the C&ED to address regulatory gaps identified following the JPEX scandal, which resulted in losses of more than $200 million.

Previously, OTC services were solely regulated by the C&ED, but recent discussions indicate a shift toward a combined regulatory approach. The SFC has been consulting industry players about the potential new regime and has also been evaluating regulations for cryptocurrency custodian services. These discussions are still in early stages and subject to change, the sources said.

In mid-August, crypto.news reported that the SFC identified unsatisfactory practices during on-site inspections of 11 “deemed-to-be-licensed” crypto exchanges, raising doubts about their ability to meet full licensing requirements. The investigation revealed that some exchanges were overly reliant on a small number of executives to manage client asset custody, while others were not “properly guarding against cybercrime risks.”

Hong Kong’s regulatory landscape has been evolving, with new licensing requirements for crypto exchanges and the introduction of crypto exchange-traded funds. However, concerns persist among local players. In March, Alessio Quaglini, co-founder and CEO of crypto custodian Hex Trust, voiced worries about proposed OTC regulations, suggesting that stringent requirements could drive businesses like Hex Trust to relocate to more crypto-friendly jurisdictions.