Officials from the Hong Kong Monetary Authority (HKMA) has issued a press release warning investors to be vigilant when navigating the crypto sector. The HKMA urged investors to avoid engaging with crypto firms that identify themselves as banks.
In the report, the HKMA stated that crypto firms have no similar characteristics as banks or other financial providers. Recently, crypto firms have adopted deceptive measures to attract more audiences to the digital sector.
Crypto Firm Acting as Banks
The HKMA condemned the deceptive approach used by crypto firms in promoting their products. They urged the public to be vigilant when purchasing products offered by crypto firms claiming to be bank depositories.
Reflecting on the Banking Ordinance document that provides the legal framework for supervising banking activities, the HKMA questioned the services offered by these “crypto firms.” The market regulators noted that most of the banking services provided by the crypto firms contravened Cap 156 of the Banking Ordinance Act.
The HKMA urged businesses operating as a crypto bank, digital trading bank, digital trading bank, and digital asset bank to act according to the law. The regulators blamed the crypto firms mentioned above for deceiving the public.
They noted that most of the products and services offered by crypto firms under investigation were illegal. The HKMA pointed out that the local crypto firms provided the user with products of low risk but promised high returns in the long run.
Additionally, these crypto firms adopted effective marketing strategies to broaden their market presence and generate high returns. A scrutiny of the marketing technique the suspicious crypto firms spread misleading information seeking to onboard more clientele.
The HKMA condemned the crypto firms for providing misleading information to the public. The report illustrated that some crypto firms deceived the customers that they were banks. The HKMA observed that some investors fell for the trap by entrusting the crypto firms with their savings and assets.
Impact of Unlawful Crypto Activities
The rise of unlawful crypto activities obliged the HKMA to take proactive steps to safeguard the consumers. Under the Hong Kong Deposit Protection Scheme (DPS) which seeks to protect the investor’s assets held by banks; the HKMA stresses the need to comply with the statutory law.
The HKMA urged the public to deal with crypto firms that are fully licensed to avoid financial risks. The regulators underscored that unlicensed crypto firms are not recognized by the DPS, which exposes the public to potential risks.
In support of HKMA sentiment, the Securities and Futures Commission (SFC) issued a separate warning concerning digital assets. The SFC warned the public about investing in digital assets with susceptible features.
The financial regulators noted that the JPEX, a Hong Kong-based crypto exchange, operated unlicensed. The SFC team blamed the JPEX for claiming to be licensed, yet the exchange operated as an unregistered entity. The SFC warning compelled the JPEX to update its withdrawal cost and align the business practices according to the compliance requirements.
Elsewhere, the Hong Kong Police Unit claimed to have received around 83 complaints regarding JPEX. Speaking exclusively with the local news, the commissioner of Police, Raymond Siu Chak-Yee, said that the complainant, claimed that JPEX had withdrawal challenges. The official added that crypto assets worth over $4.3 million were lost on JPEX saga.
The HKMA regulatory actions echo the efforts made by the US Federal Deposit Insurance Corporation (FDIC) to safeguard customers from financial risks posed by crypto firms. In April, the FDIC raised concerns about the threats posed by crypto firms on banks.
The FDIC stated that crypto activities expose the public to numerous risks, including consumer protection, financial stability, and safety concerns. The regulators noted that as the crypto ecosystem continues to evolve, customers will experience heightened risks.
Notably, ongoing regulatory action on crypto firms seeks to promote transparency and clarity of digital assets. The attempt to safeguard the investors and consumers has forced FDIC and HKMA to join other regulators to supervise crypto activities.