Hong Kong authorities have confirmed their intention to tighten the regulation for digital currency service providers following the liquidity crisis plaguing JPEX, an unregistered digital asset exchange.
In a statement, Hong Kong Chief Executive John Lee Ka-Chiu said the government will launch a nationwide sensitization initiative to educate investors on the dangers of dealing with unregistered entities. Lee’s comments come in the wake of allegations of fraud around JPEX, with widespread reports of investors unable to access their deposits.
“This incident highlights the importance that when investors want to invest in digital assets, then they must invest on platforms that are licensed,” said Lee. “The SFC will monitor the situation very closely and ensure that investors are sufficiently protected.”
According to local reports, some investors could not withdraw their digital assets from the exchange, while others noted dwindling balances on their accounts, leading to mass police complaints. Authorities say that they received a total of 1,641 complaints, with potential losses surpassing $153 million.
Following allegations of fraud, Hong Kong’s police arrested eight individuals connected with JPEX, including social media influencer Joseph Lam (Lin Zuo), for promoting the unregistered exchange.
Aside from the arrest, authorities confirm that they have successfully frozen up to $1 million in bank accounts affiliated with the exchange and seized real estate worth $5.6 million.
The Securities and Futures Commission (SFC) recently issued a public advisory warning users to avoid investing in the exchange over fraudulent claims of JPEX’s registration status. The SFC described JPEX offerings as “suspicious,” urging investors to remain wary of sinking funds into the exchange.
The SFC’s warning appears to have triggered a large-scale withdrawal spree by users, forcing JPEX to impose sky-high withdrawal fees before suspending withdrawals. In a statement, JPEX blamed the liquidity crisis on third-party market makers seeking to profit from the chaos.
The exchange also took swipes against the SFC for its public advisory against the firm as being against the government’s objective of establishing a vibrant Web3 hub.
“The unfair suppression by the SFC has led us to consider withdrawing our license application in the Hong Kong region and adjust our future policy development accordingly,” JPEX said.
Hong Kong’s stern warning
In the future, Hong Kong’s administrators have reiterated their commitment to ensure the safety of investors from perceived bad actors. The central bank lent its voice, issuing stern warnings against digital asset firms parading as “banks” and referring to assets eld as “deposits.”
Service providers are precluded from using the terms “low-risk,” “high-reward,” and “digital bank,” with stern punishments prescribed for their violations.
“These descriptions may mislead members of the public into believing that those crypto firms are banks authorized in Hong Kong, to which they can entrust their savings,” said the Hong Kong Monetary Authority (HKMA).