Hong Kong Looks At Crypto Regulations As Arrests Mount In JPEX Probe

Updated: 19 September 2023

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Hong Kong’s Chief Executive John Lee indicated the Chinese city may tighten crypto regulations following an investigation into crypto exchange JPEX that triggered six arrests and mounting reports of losses.

His comments were made after JPEX users filed more than 1,600 complaints against the exchange that cumulatively involved losses estimated of almost HK$1.2 billion ($150 million), local media reported.

Six people were arrested for their connection to the crypto exchange on Monday after the city’s Securities and Futures Commission (SFC) had said that it was not licenced to operate in Hong Kong.

“This incident highlights the importance that when investors want to invest in virtual assets, then they must invest on platforms that are licensed, that are regulated by the SFC (Securities and Futures Commission),” Lee said. “We will be doing more public education for investors to know the risks.”

Uncertainty About Hong Kong’s Crypto-Friendly Status

Hong Kong has rolled out the red carpet for the crypto industry by establishing regulations in June that encourage crypto companies to set up in the city. This despite the fact that China bans crypto.

Hong Kong aims to become one of the world’s preeminent crypto hubs, and in October last year laid out a blueprint for developing the industry.

The city was again ranked the world’s most crypto-ready destination in the world in 2023 for a second year, according to a new report by Forex Suggest, a foreign exchange education platform.

But there are some concerns over the longevity of its welcome to the industry. Last week Ethereum co-founder Vitalik Buterin said that crypto companies considering establishing businesses in Hong Kong would need to be confident about it remaining hospitable to the industry in the longer term, not just now.

“Obviously it’s very friendly now but the big question that I’m asking, and that I think anyone is asking, is how stable is the level of friendliness,” he said. Businesses “would want to have some confidence, not just that it’s friendly now, but that it will continue to be friendly years from now when all kinds of unknown, regulatory and political and other kinds of events are going to happen,” he added.

The unregulated virtual asset exchange #JPEX temporarily halted trading due to an ongoing police investigation into suspected #fraud. Social media influencer Joseph Lam Chok was taken away for inquiry, with over 1,000 individuals reporting fund withdrawal issues to the police.… pic.twitter.com/0CvVD1jySR

— HKeye (@HKeye_) September 19, 2023

JPEX Provided False Information, SFC Said

JPEX suspended some operations on Sept. 18 after the SFC had warned that the crypto exchange had provided false information about obtaining licenses from foreign regulators, promoted business partnerships that never materialized, and was offering suspiciously high returns for its interest-bearing products.

JPEX quickly blamed the SFC for its plight in a notice on its website.

“Due to the unfair treatment by relevant institutions in Hong Kong towards JPEX, a cryptocurrency trading platform, and a series of negative news, our partnered third-party market makers have maliciously frozen funds,” it said. ”They demanded more information from the platform for negotiation, restricting our liquidity and significantly increasing our daily operating costs, leading to operational difficulties.”

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