In a move to bolster retail investors' protection, Hong Kong's Securities and Futures Commission (SFC) has announced a series of new measures this week. These initiatives come on the heels of the JPEX crypto exchange debacle, which exposed vulnerabilities in the city's regulatory framework for virtual assets. The SFC's new measures aim to enhance transparency, improve public awareness, and tighten regulations around crypto trading platforms.
JPEX Blowup Prompted Response from Hong Kong Regulator
In June 2023, Hong Kong opened up to retail cryptocurrency trading, significantly relaxing the country's existing rules. However, the number of licensed platforms that could provide these services remains small, a fact exploited by other, unregulated entities to attract new customers. One such exchange was JPEX, which is now facing serious issues with the withdrawal of investor funds.
To combat the disinformation, the SFC plans to publish a comprehensive list of licensed Virtual Asset Trading Platforms (VATPs) on its website. This list will include currently licensed platforms, those in the application process, and entities that have been ordered to shut down or are deemed suspicious. The regulator believes this transparent approach will help investors decide which platforms to engage with.
In addition to enhancing transparency, the SFC is launching a public campaign to educate people on protecting themselves against fraud. The commission is committed to investigating and prosecuting illegal platforms. To this end, the SFC is ramping up its intelligence-gathering efforts on businesses related to virtual assets.
"The SFC will, within its statutory powers, continue to strengthen its intelligence gathering process towards different businesses related to virtual assets. It will continue to take follow-up and enforcement actions against suspicious VATPs that may have violated the law, and refer cases to the Police when necessary," the SFC commented in the official press release.
The planned actions presented by SFC were summarized in the table below:
Action | Description |
Publication of VATP Lists | The SFC will publish various lists to disseminate information transparently and timely. These lists include: List of licensed VATPs, list of closing-down VATPs, list of deemed licensed VATPs as of 1 June 2024 and List of VATP applicants due to public demand. |
Enhanced List of Suspicious VATPs | The SFC will issue a dedicated list of suspicious VATPs that will be easily accessible on its website. The aim is to help the public identify potentially fraudulent VATPs and disseminate information clearly, transparently, and timely. |
Public Awareness Campaign | The SFC and the IFEC will launch a campaign to raise public awareness against fraud. This will be done through various means such as mass media, social media, and educational talks, aiming to enhance understanding of the risks associated with Virtual Assets (VAs) and potential fraud. |
Strengthening Intelligence Gathering | The SFC will continue to strengthen its intelligence-gathering process regarding businesses related to VAs. It will take follow-up and enforcement actions against suspicious VATPs and refer cases to the Police when necessary. The public is encouraged to file complaints via the SFC's Online Complaint Form. |
Update on JPEX Case
Over the weekend, 11 individuals connected to the JPEX case were arrested, and authorities are seeking Interpol assistance to apprehend the exchange's leaders. Some cryptocurrencies linked to the fraud have also been frozen. More than 1,400 complaints have been filed against the trading platform, indicating losses exceeding HKD 1 billion, or approximately $127.9 million.
Additionally, Finance Magnates disclosed last Monday that local authorities detained financial influencer Joseph Lam Chok due to his online promotion of the troubled exchange. The arrest occurred just a few hours following the exchange's latest issues.
The SFC stated that it would continue to review the regulatory landscape in Hong Kong and take timely measures in response to new market developments.
"Adhering to the 'same business, same risks, same rules' principle, the SFC will work with the HKSAR Government to regularly review the regulatory regime in Hong Kong and consider timely measures in light of new market developments. These measures may include regulation of VA-related businesses other than the VATPs," the regulator added.
The SFC has been proactive in identifying the potential benefits and risks associated with digital finance and virtual asset activities. Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, which came into full effect on 1 June 2023, the SFC has closed gaps in its licensing and supervision powers over VATPs. The regulator has imposed stringent requirements to ensure investor protection, including enhanced due diligence and robust governance measures.
