Hong Kong to List ‘Suspicious’ Crypto Exchanges in the Aftermath of JPEX Saga

On Monday, September 25, the Securities and Futures Commission (SFC) in Hong Kong vowed to up its game in regulating the crypto sector. The report indicated that the financial regulators would develop strategies to restrict the operations of unregulated crypto exchanges and trading platforms.

Firstly, the SFC will list complainant, licensed and unregistered exchanges. The list will make the public aware of the compliance level of virtual assets service providers (VASPs).

Consequences of JPEX Scandal

The SFC will also list VASP with pending licensing approval to allow the investors to identify the complainant and noncompliant firms. As the country seeks to position itself as an international crypto hub, Hong Kong has developed policies to attract foreign investment in the region.

According to Statista, Hong Kong envisages generating around $142.50 million from crypto activities at the end of 2023. Despite the exciting growth of the Hong Kong crypto industry, some local exchanges driven by the desire for monetary success are breaching regulations on crypto assets.

Last week, the Hong Kong police unit received over 2265 complaints from crypto investors who had invested in JPEX, a local trading platform. The complainants lamented that they were unable to complete withdrawal transactions timely. After probing the matter, the police noted that the JPEX orchestrated a fraudulent scheme that exposed the customers to loss of assets worth approximately $178 million.

News concerning the JPEX saga has been circulating in different media outlets after the police arrested 11 people for further questioning. According to the police statement, the enforcement unit confessed that efforts to arrest the leaders of the JPEX are still ongoing. However, due to the complexity of the JPEX case, the law enforcers have engaged other international regulators, including Interpol, to probe the matter.

The collaborative investigation approach seeks to track illegal transactions conducted through the JPEX. Additionally, the police will liaise with the Hong Kong telecommunication companies to limit the accessibility of the JPEX website.

In the observation the probing team noted that JPEX operated as an unlicensed exchange. Surprisingly, the JPEX scandal was recorded as the largest financial fraud in the history of Hong Kong.

Factor Contributing to Illegal Crypto Activities

The rise of illegal crypto activities obliges the SFC to develop measures to minimize the potential risk. The SFC plans to list suspicious VASPs that pose as a threat to the public.

Additionally, to create awareness, the SFC technical team will update the list of compliant and unregulated exchanges on the official website. This regulatory approach seeks to address the violation of crypto regulations.

Also, the listing of the illegal VASP seeks to bring down non-compliant exchanges. This regulatory strategy educates the public on the risks associated with unregulated exchanges. Also the SFC aims to restore the confidence of crypto investors by minimizing the number of non-compliant firms.

Besides regulating the entire crypto market, Hong Kong regulators acknowledge that crypto and blockchain technologies have massive potential to transform the traditional financial market. To tap to the endless opportunities in the crypto industry the regulators introduced a new licensing regime in Hong Kong.

Overview of Hong Kong Crypto Regulations

In early June, the Hong Kong regulators enforced a new licensing regime for VASP aiming at ensuring that retail traders meet the compliance requirements. The regulators have greenlighted HashKey and OSL Digital licensing applications, allowing the exchange to offer their crypto services to retail clients.

The SFC move mirrors the regulatory action taken by the US Securities and Exchange Commission (SEC) and market regulators in San Francisco in identifying non-compliant exchanges. In 2021, the SEC listed around 28 crypto investments that operated as unregistered entities.

At that time, the SEC warned the public from engaging with the listed suspicious firms purporting to offer advisory services on digital assets. Elsewhere, regulators in San Francisco published the “Suspicious Activities Report of 2021 (SAR)” outlining the existing regulated and unregulated crypto exchanges.

The SAR report indicated that most exchanges failed to comply with the global anti-money laundering (AML) requirements, among other federal laws.

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