After just three months of easing cryptocurrency regulations in Hong Kong, authorities are already discussing tightening them again. In the wake of alleged fraud at JPEX, an unlicensed cryptocurrency exchange in the Chinese special administrative region, authorities are taking stringent measures to regulate digital assets. Six individuals have been arrested, and the Securities and Futures Commission (SFC) has received many complaints against the platform, leading to calls for tighter supervision.
Unlicensed Crypto Operations under Fire in Hong Kong
The SFC had already warned the public about JPEX's unlicensed status before the arrests were made. Over 1,400 complaints have been lodged against the exchange, implicating more than HKD 1 billion ($127.9 million) in losses. Apart from this, some investors have reported issues related to withdrawing their virtual assets or finding their balances manipulated.
Moreover, Finance Magnates reported yesterday (Monday) that local police arrested the financial influencer Joseph Lam Chok in connection with his online activities promoting the platform. The arrest came just hours after the beleaguered exchange confirmed the suspension of trading activities following an investigation by the SFC.
According to the Associated Press, the regulator may go a step further and is currently considering tightening cryptocurrency regulations to prevent similar situations in the future. It's worth noting that Hong Kong only recently relaxed rules concerning cryptocurrency trading, allowing retail investors to re-enter the market.
JPEX Clients Left in the Lurch
According to some complaints, investors were unable to withdraw their digital assets from their JPEX accounts. In certain instances, account balances were mysteriously altered. Hong Kong's Chief Executive, John Lee, emphasized the need to educate investors on using only SFC-licensed platforms for trading.
JPEX has temporarily suspended trading and is reportedly in talks with third-party market makers to resolve liquidity issues. The exchange released a statement accusing unspecified institutions in Hong Kong of treating it unfairly and alleging that a partnered third-party market maker had frozen its funds.
“Due to the third-party market makers restricting our liquidity and to comply with policy guidelines, all transactions on our Earn Trading interface will be delisted on September 18, 2023, at 00:00 (GMT+8),” the troubled exchange commented in its blog post. “During this period, our dedicated withdrawal team responsible for handling emergency withdrawal requests will continue to prioritize users’ needs.”
The SFC began accepting license applications from cryptocurrency exchanges starting June 1. Until then, only professional investors could access such trading platforms. However, only two exchanges have received approval to date: OSL Exchange and Hashkey Exchange.
The latest issues surrounding JPEX, which may have solvency problems, could slow down Hong Kong's ambitions to become a new cryptocurrency hub. Several well-known companies, including Binance, have recently taken a chance on the region.
SFC Warned against Improper Practices before
As it turns out, the SFC in Hong Kong observed a rise in improper activities by some unlicensed virtual asset trading platforms a month before JPEX issues emerged.
The regulator highlighted four main issues:
- misinformation about obtaining cryptocurrency licenses in Hong Kong,
- non-compliance with local regulations,
- companies operating without the required authorizations,
- a specific warning to retail investors.
As Hong Kong's interest in cryptocurrencies grows, unregulated activities are also rising. The cryptocurrency exchange OKX recently gained 10,000 users for its local mobile app within a month. Well-known platforms like Gate.io had entered the Hong Kong market even before regulations were enacted, keen on capturing the local trading scene.
