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Hong Kong Securities and Futures Commission Reinforces Virtual Asset Rules After JPEX Debacle

Hong Kong’s Securities and Futures Commission (SFC) is implementing a series of enhanced measures to reinforce information dissemination and investor education, following recent concerns regarding unregulated virtual asset trading platforms (VATPs).

The news swiftly follows a high-profile case involving unlicensed crypto exchange JPEX, which SFC has accused of misleading investors. It believes that JPEX was actively marketing products and services across Hong Kong via “social media influencers and key opinion leaders” without the necessary licenses.

The SFC has already notified the relevant individuals and over-the-counter virtual asset money changers of the SFC’s suspicions and concerns and requested them to cease promoting JPEX.

Throughout September, Hong Kong police also arrested over 10 individuals, ranging from JPEX employees to online influencers, on suspicion of conspiracy to commit fraud – in relation to the virtual asset trading platform case.

According to the SFC, JPEX never approached the regulator to obtain any form of licence. The regulator explained that no entity in the JPEX group is licensed by the SFC or has applied to the SFC for a licence to operate a virtual asset trading platform in Hong Kong.

The SFC explained that it has recognised the wide range of benefits that digital finance and virtual asset activities can bring to the financial markets in the region. However, after identifying associated risks including decentralisation, money laundering and investor protection issues, the regulator is introducing a range of new measures.

Clamping down on unlicensed activity

Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, which came into full effect on 1 June 2023, the new licensing regime for centralised VATPs has closed the gap in the SFC’s licensing and supervision powers over VATPs.

SFC-licensed VATPs are subject to robust governance measures covering safe custody of assets, prevention of market manipulative and abusive activities, as well as avoidance of conflicts of interest, to safeguard investors’ interests.

The SFC’s new measure includes publishing virtual asset trading platform (VATP) lists to ensure that all information shared is clear and transparent. Proposals include:

  1. a list of licensed VATPs
  2. a list of closing-down VATPs setting out the names of VATPs required by law to close down within a specified period
  3. a list of deemed licensed VATPs
  4. a list of VATP applicants

To help the public identify suspicious VATPs doing business in Hong Kong and enhance awareness, the SFC also plans to issue a dedicated list of suspicious VATPs which will be easily accessible on the SFC’s website.

Plans to launch a new public campaign to raise awareness in guarding against fraud were also revealed by the SFC and the Investor and Financial Education Council (IFEC). They hope this will further improve investor education through mass media, social media and education talks – facilitating the public’s understanding of the risks associated with VAs and potential fraud.

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