The Securities and Futures Commission (SFC) in Hong Kong has issued warnings against seven cryptocurrency trading platforms for operating illegally without proper licence.
This action is part of the SFC’s ongoing effort to reduce fraud and scams in the crypto industry.
Since January 2020, the SFC has maintained an Alert List, highlighting exchanges that are either unlicensed or falsely claim associations with Hong Kong.
Currently, this list includes 39 entries, with 28 flagged in 2024 alone.
Recent additions to this list are Taurusemex, Yomaex, Bitones.org, BTEPRO, CEG, XTCQT, and Bstorest.
These platforms are suspected of fraudulent activities, such as blocking withdrawals and demanding “fees” to resume operations.
Regulatory measures and licence applications
Hong Kong regulators have taken bold steps to ensure compliance in the crypto trading sector since the start of 2024. The SFC mandated all exchanges to apply for a licence by 31 May, after which unregistered exchanges were required to shut down.
This move was part of a broader strategy to bring more transparency and security to the burgeoning cryptocurrency market in Hong Kong.
During this period, over 22 cryptocurrency exchanges applied for licences to continue their operations in the region.
However, many of these exchanges withdrew their applications just before the deadline.
This reflects the stringent regulatory environment imposed by the SFC, which aims to protect investors and maintain the integrity of the financial system.
The regulatory measures highlight the SFC’s commitment to ensuring that only compliant and trustworthy entities operate within the region.
Managing crypto crimes
Hong Kong authorities are improving their methods for handling cryptocurrency-related crimes. Recently, law enforcement thwarted a kidnapping where the ransom demanded was 660,000 $USDT.
Louis Li Sze-Chung, a notable cryptocurrency investor and advisor to the local tech start-up association 852Web3, emphasised the traceability of $USDT, which allows authorities to freeze or destroy coins involved in criminal activities.
Last November, Tether froze $225 million in $USDT linked to a human trafficking syndicate, illustrating the effectiveness of this approach.
Joshua Chu Kiu-wah, a lawyer specialising in technological disputes and cybersecurity, noted that freezing funds in stablecoins can happen within a day, unlike traditional banks, which require months and a court order.
Despite this progress, challenges remain with decentralised cryptocurrencies like Bitcoin ($BTC) and Ethereum ($ETH), which do not use intermediaries, making them hard to trace.
Decentralised exchanges (DEX) also pose difficulties as they do not cooperate with law enforcement due to their decentralised nature.
This ability to swiftly freeze assets tied to illicit activities underscores the potential of stablecoins in combating financial crime.
However, the decentralised nature of many cryptocurrencies continues to present significant hurdles for regulators and law enforcement agencies.
Upcoming stablecoin regulations
Hong Kong’s financial authorities will soon publish the results of their stablecoin consultation, part of the legislative proposal to oversee the industry.
The Financial Services and the Treasury Bureau (FSTB) stated that they will release the December consultation results and submit a draft legislative bill to the Legislative Council.
The consultation suggested that all fiat-referenced stablecoin issuers obtain licences from the Hong Kong Monetary Authority.
The new proposal also aims to regulate stablecoin issuers’ reserve management, stability mechanisms, redemption processes, and governance.
These measures highlight Hong Kong’s commitment to enhancing the security and regulation of the cryptocurrency market, focusing on stablecoins’ traceability while addressing the challenges posed by decentralised cryptocurrencies.
The proposed regulations will provide a framework for stablecoin issuers to operate within a secure and transparent environment, ensuring that the value of these digital assets is backed by adequate reserves and that they are managed responsibly.
