Hong Kong is set to tighten cryptocurrency regulation after the arrest of six people associated with the local exchange JPEX and the freezing of its funds, according to a recent statement by the territory’s leader John Lee Ka-Chiu.
Hong Kong authorities arrested six people for their involvement in the JPEX exchange yesterday, 18 September. This came after almost 1,500 complaint and allegations that it was operating as an unregistered exchange.
Hong Kong is now planning on strengthening regulation of digital assets and efforts on educating crypto laws for consumers.
The fall of JPEX
JPEX, the Hong Kong-based cryptocurrency exchange, was operating in the region without a license, according to the territory’s Securities and Futures Commission (SFC).
The police also received almost 1,500 complaints about the platform with reports that they were owed a total of $128million.
With JPEX coming under public scrutiny, several users found themselves unable to access their funds, while others raised concerns over shrinking wallet balances.
The exchange reportedly hiked its withdrawal fee to $1,000 to deter users from pulling out their assets.
Addressing the allegations, the exchange said in a blog post: “Recently, due to the unfair treatment by relevant institutions in Hong Kong towards JPEX, a cryptocurrency trading platform, and a series of negative news, our partnered third-party market makers have maliciously frozen funds.”
It added: “They demanded more information from the platform for negotiation, restricting our liquidity and significantly increasing our daily operating costs, leading to operational difficulties.”
Determination from JPEX
Despite the warnings and allegations from the SFC, JPEX has said it will continue operating.
Criticising the SFC, the exchange stated: “As an operator in the cryptocurrency industry and a promoter of the Web 3.0 concept, JPEX expresses extreme disappointment at the SFC’s unfair practices that disrupt market order.”
The exchange claimed that this “attitude contradicts the government’s policy development direction of making Hong Kong a Web 3.0 city, but their biased stance also does not fulfil their role as a fair and impartial regulator, let alone protect the multitude of investors in Hong Kong.”
However, JPEX is taking down some of its products. The exchange has announced the delisting of all transactions on its Earn Trading interface from 18 September and adjustments to the withdrawal fees.
The exchange has even expressed interest in transitioning into a decentralised autonomous organization (DAO).
Hong Kong tightens regulation
Addressing the media today, 19 September, John Lee said the government will step up its efforts in educating investors about cryptocurrency regulation. He advised them to use only those platforms that have been licensed by the SFC.
China has banned cryptocurrency transactions since 2021, this includes transactions made on foreign exchanges accessed from within the country. Following this ban, many Chinese cryptocurrency companies moved their operational bases to Hong Kong for the more favourable regulatory environment.
The SFC began accepting license applications from cryptocurrency exchanges in June 2023. Licensed platforms can process transactions from retail investors, but these investors need to be fully aware of the risks involved.
Before this license, only professional investors had access to such exchanges.
Currently, only two exchanges have received this required approval for retail investors in Hong Kong, OSL Exchange and Hashkey Exchange.