- Hong Kong’s chief executive is considering changes to legislation following the scandal.
- Authorities were criticized for operating a skewed crypto licensing regime.
- The latest reports reveal losses significantly greater than first thought.
Cryptocurrency exchange fraud has become an increasing threat as digital assets gain mainstream traction worldwide. High-profile cases like FTX and Celsius have cost investors billions, intensifying calls for tougher regulation. Now, Hong Kong is confronting its own exchange scandal following the collapse of JPEX amid fraud allegations.
Per Hong Kong’s Securities and Futures Commission (SFC), the Dubai-based exchange was not licensed to operate in Hong Kong. Still, it had been actively marketed to Hong Kong residents via social media in the run-up to its collapse.
Having initially pushed for a shift to web3 and the incorporation of new rules on crypto exchange licensing in the region, it now appears that Hong Kong authorities are dialing back their previously receptive stance toward digital assets.
Hong Kong Rethinks Crypto Legislation
In response to the JPEX scandal, Hong Kong’s chief executive, John Lee Ka-chiu, told local media that authorities are considering effective legislation, particularly concerning appropriately managing overseas-based entities, in light of the scandal. The specifics of what those changes might entail were not made available.
Lee stated that the incident highlighted the importance of trading on licensed platforms. This, he emphasized, is the only way for Hong Kong investors to protect themselves from rogue exchanges. Lee further mentioned that authorities intend to conduct “more public education for investors” to help tackle the issue.
Wading into the discussion, associate professor at Baptist University Billy Mak criticized the government for its approach to crypto exchange licensing, stating that the SFC has approved just two operators since the rules began on July 1, yet hundreds more operate in the region with impunity.
Several JPEX users came forward to file complaints with Hong Kong authorities about their experiences of using the platform.
JPEX Scandal Widens
Initial reports on September 18 revealed that 83 complaints were made against JPEX, tallying a combined loss of HK$34 million (US$4.3 million). Victims reported being unable to withdraw their crypto assets from the platform, and, in some cases, account balances were understated.
The number of complaints exploded on the following day as a result of the wider publicity of the scandal. The most recent count comes in at 1,641 cases with a combined loss of HK$1.19 billion (US$152.2 million).
Hong Kong’s acting chief inspector Mak Wai-kwong called the amount lost an “astonishing” figure and cautioned investors to keep their wits about them amid promises of high returns.
On the Flipside
- How the Hong Kong government will respond in terms of hardening legislation, if at all, is unknown at this time.
- JPEX has licensing approval from FinCEN in the US, FinTrac in Canada, and ASIC in Australia.
- JPEX claims it is receiving unfair treatment by the SFC and has called for guidance and collaboration on the matter.
Why This Matters
While global regulators often get a bad rap for taking a heavy-handed approach to crypto, the SFC has demonstrated a nuanced reaction toward investor protection. However, to what extent regulators intend to tighten legislation is yet unknown.
Read more about the SFC’s response to the JPEX scandal here:
JPEX Exchange Shuts Down Operations as SFC Probe Escalates
Find out which tokens were cut from the NYDFS’ approved list of cryptocurrencies here:
XRP Cut as New York Cracks Crypto Whip: Which Tokens Made It?