Hong Kong to scrutinize cryptocurrency regulation after arrests linked to JPEX exchange
Hong Kong's leader announced on Tuesday a comprehensive review of digital asset regulations in response to the recent arrests of eight individuals in connection with an unlicensed cryptocurrency exchange fraud. This incident affected over 1,600 investors and resulted in losses exceeding $150 million.
Among those detained were social media influencers who actively promoted the JPEX cryptocurrency exchange, as well as JPEX employees, according to the police.
During a regular news conference, Hong Kong's Chief Executive, John Lee, emphasized the importance of investing in virtual assets through licensed platforms. He stated, "This incident highlights the critical need for investors to choose licensed platforms when investing in virtual assets." Lee also reassured that the Securities and Futures Commission (SFC) would closely monitor the situation to ensure investor protection.
Lee further mentioned that the government intends to enhance education efforts to provide investors with a better understanding of the associated risks and regulatory framework.
Police Senior Superintendent Kung Hing-fun revealed that most of the affected investors were inexperienced individuals who had been lured by promises of high returns and minimal risks.
Elizabeth Wong, who leads the Fintech Unit at the Securities and Futures Commission (SFC), has announced an investigation into possible violations of the anti-money laundering ordinance by JPEX. The SFC has referred the case to the police and pledged full cooperation with their investigation.
The arrest of the eight individuals comes on the heels of the SFC's recent announcement that JPEX was operating without a license and lacked the necessary authority to conduct cryptocurrency trading within the city. Numerous investors had reported difficulties in withdrawing virtual assets from their JPEX accounts, along with unauthorized changes to their balances.
In response, JPEX declared a suspension of trading on its platform on Monday and revealed negotiations with third-party market makers to address liquidity issues.
On Sunday, JPEX raised concerns about "unfair treatment by relevant institutions" in Hong Kong and accused an unidentified third-party market maker of maliciously freezing funds.
The police disclosed that they had frozen bank accounts valued at 15 million Hong Kong dollars ($1 million) and seized three properties worth 44 million Hong Kong dollars ($5.6 million). They also revealed that they had received 1,641 complaints related to JPEX, involving a total of 1.2 billion Hong Kong dollars ($153 million).
It's worth noting that cryptocurrency transactions have been prohibited in mainland China since 2021, including transactions made on foreign exchanges from within mainland China. Consequently, Chinese cryptocurrency firms have shifted their operations to Hong Kong.
Starting from June 1, the SFC began accepting applications from cryptocurrency exchanges, allowing licensed operators to serve retail investors, provided they understand the associated risks. Prior to this, only professional investors had access to such exchanges. Currently, only two exchanges, OSL Exchange and Hashkey Exchange, have received approval in Hong Kong.