Hong Kong officials race to respond to JPEX scandal by changing licencing practices

As the furore over the crypto exchange JPEX escalates, Hong Kong regulators are scrambling to clarify and strengthen licencing practices for crypto firms.

In a reversal, the Hong Kong Securities and Futures Commission (SFC) said on Monday that it will now adopt new measures to make the application process for crypto licences more transparent.

In practice this means providing more information about the application status of virtual asset trading platforms.

Calls from the public

The move comes in response to growing calls from the public and lawmakers to protect investors following a police investigation into JPEX, a three-year-old crypto exchange that claimed to manage $2 billion in digital assets.

The probe resulted in eleven arrests earlier this month. The SFC alleges that JPEX falsely marketed itself as a licensed exchange.

Among those arrested were influencer Joseph Lam, who was released on bail last week without charge. He told reporters at a press conference last Friday that he had closed his OTC crypto shop but declined to share further details about the investigation.

Hong Kong police also arrested several people working for JPEX, according to police reports.

JPEX has denied the claims made against it by the SFC. But in a blog post on Sunday, it asked Hong Kong users to temporarily cease depositing new assets and crypto-assets into the platform.

Market confidence

With users facing high fees to withdraw funds, pressure has been growing on the SFC to ensure investors are better educated about virtual asset trading platforms.

This is especially important as the semi-autonomous metropolis strives to revive its fortunes as Asia’s go-to crypto hub.

“The JPEX incident highlights the risks of dealing with unregulated VATPs and the need for proper regulation to maintain market confidence,” the agency said in a statement on Monday.

More clarity

The SFC is hoping publishing registries of licenced platforms will provide investors with more clarity; it also plans to maintain a registry of virtual asset trading platforms that have been shut down. In addition, the SFC said it would prepare public awareness campaigns to educate the public on the risks of cryptocurrency investing.

“The SFC will also consider providing more information about these VATPs to alert investors at an earlier stage. Again, this is to ensure that information will be disseminated in a clear, transparent and timely manner,” the SFC added in a statement.

Only four exchanges register

Yet the agency has its work cut out for it.

Crypto firms are known for resisting the entreaties of regulators. So far, only four exchanges out of the dozens operating in Hong Kong have applied for licences from regulators ahead of a deadline next year, according to the South China Morning Post.

They are HKBitEx, Hong Kong BGE, HKVAX, and Victory. Two additional exchanges, OSL and Hashkey Exchange, have already received licences, while exchanges like OKX and HTX (formerly Huobi) have signalled plans to apply in the future.

Got a tip about JPEX or other crypto exchanges in Hong Kong? Reach out to the author at callan@dlnews.com