<p>While Hong Kong has been developing steadily as a crypto sector hub, the focus in the Chinese autonomous territory has turned towards regulation after a recent scandal involving an unlicensed cryptocurrency exchange.</p><h2 id="header-0">Ongoing investigation</h2><p>Yesterday we<a href="https://medium.com/&#64;coinness.gl/crypto-influencer-arrested-in-hong-kong-over-jpex-association-b089cc8026aa" rel="noopener noreferrer nofollow"> reported</a> on some arrests relative to problems experienced at crypto exchange JPEX. The fallout continues on Tuesday, with the Hong Kong police now understood to have arrested eight individuals, including social media influencers who promoted the exchange and JPEX employees, on allegations of fraud. This illicit activity in and around the JPEX exchange has affected over 1,400 investors, implicating more than $128 million in assets.</p><p>JPEX, in response to mounting pressure, announced the suspension of trading on its platform. In a statement, the exchange mentioned ongoing negotiations with third-party market makers to address liquidity shortages. However, JPEX also accused an unidentified third-party market maker of maliciously freezing funds, further complicating the situation.</p><h2 id="header-1">Politicians and regulators speak out</h2><p>Responding to the incident via a<a href="https://gbcode.rthk.hk/TuniS/news.rthk.hk/rthk/en/video-gallery.htm?vid&#61;1718980" rel="noopener noreferrer nofollow"> press conference</a> on Tuesday, Hong Kong’s Chief Executive, John Lee, emphasized the significance of investing in virtual assets through licensed platforms. Lee stated:</p><p>“This incident highlights the importance that when investors want to invest in virtual assets, then they must invest on platforms that are licensed.” He also pledged that the Securities and Futures Commission (SFC) would closely monitor the situation to ensure investor protection.</p><p>Elizabeth Wong, the Head of the SFC’s fintech unit, revealed that an investigation was underway to determine whether JPEX had violated anti-money laundering laws. The SFC had already declared JPEX unlicensed, prompting numerous complaints from investors who were unable to withdraw their virtual assets or experienced unexplained reductions in their balances.</p><h2 id="header-2">Assets frozen</h2><p>Hong Kong authorities have taken decisive action against those involved in the scandal. They have frozen bank accounts valued at 15 million Hong Kong dollars ($1 million) and seized three properties valued at 44 million Hong Kong dollars. The police have reported receiving 1,641 complaints related to JPEX, involving a staggering $1.2 billion Hong Kong dollars. By last Wednesday, the SFC had received in excess of 1,000 complaints and at that point, they notified the general public.</p><p>The JPEX scandal has drawn attention to the need for stronger cryptocurrency regulations in Hong Kong, a region that has become attractive to cryptocurrency firms since mainland China banned cryptocurrency transactions in 2021. In mainland China, trading cryptocurrencies on foreign exchanges from within the country remains illegal.</p><p>Hong Kong’s response to cryptocurrency regulation has evolved. Beginning on<a href="https://medium.com/&#64;coinness.gl/hong-kong-moves-to-enable-retail-crypto-trade-7cafbbb87634" rel="noopener noreferrer nofollow"> June 1</a>, the SFC started accepting applications from cryptocurrency exchanges, allowing licensed operators to serve retail investors, provided they understand the associated risks. Previously, only professional investors had access to such exchanges. Currently, only two exchanges in Hong Kong, OSL Exchange and Hashkey Exchange, have received approval to operate.</p><p>As Hong Kong reevaluates its approach to cryptocurrency regulation, the crypto sector will hope that it strikes a balance between fostering innovation and protecting investors from fraud and market manipulation.</p>

JPEX Exchange Scandal Sees Crypto Regulation Under Scrutiny in Hong Kong

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