Hong Kong Securities and Futures Commission explains next steps after HK$1.4 billion JPEX crash

The virtual asset trading platform JPEX collapsed and was accused of fraud. The incident was triggered by the Hong Kong Securities and Futures Commission's warning that JPEX falsely claimed that it was applying for a license.

The Hong Kong police subsequently intervened in the investigation. As of 5 p.m. on September 23, the Hong Kong police had received reports from 2,305 victims, involving a total amount of HK$1.43 billion, and arrested 11 people.

Hong Kong police said that the investigation into the case is still ongoing and more arrests cannot be ruled out.

On the morning of September 25, the Hong Kong Securities and Futures Commission held a press conference on the virtual asset trading platform JPEX. SFC Chief Executive Officer Leung Fung-yee, Executive Director of the Regulatory Enforcement Department Wei Hongfu, and Head of the Financial Technology Group Huang Lok-yan attended the press conference.

01 Four lists of virtual assets will be published online

Liang Fengyi said that the JPEX incident shows the risks of buying and selling on unregulated virtual asset trading platforms and the need for proper supervision to maintain market confidence.

The incident also shows that the SFC can strengthen its information release methods, including the "list of unlicensed companies and suspicious websites", warnings and investor education, to help the general public better understand the potential risks brought by suspicious websites or virtual asset trading platforms. Accordingly, the SFC will implement the following measures:

1. Publish four lists of virtual asset trading platforms online to ensure that information is clear, transparent and timely. These include:

1. “List of Licensed Virtual Asset Trading Platforms”;

2. “List of closed virtual asset trading platforms”, which lists the names of virtual asset trading platforms that are required to close within a specified period of time according to the law;

3. “List of virtual asset trading platforms deemed to be licensed”, which lists the names of virtual asset trading platforms deemed to be licensed as of June 1, 2024;

4. Based on public demand, a “List of Virtual Asset Trading Platform Applicants”.

2. In order to help the public more easily identify suspicious virtual asset trading platforms operating in Hong Kong and raise their vigilance, the SFC will optimize and publish a special list of suspicious virtual asset trading platforms, which will be clearly published on the SFC website and easily accessible.

The SFC will also consider providing more information on unregulated virtual asset trading platforms to alert the public early. This will ensure that information is released in a clear, transparent and timely manner.

3. The CSRC and the IFCC will soon launch a series of public publicity activities to raise awareness of fraud prevention, and will continue to strengthen investor education in various ways, including mass media, social media, educational lectures, etc., so as to deepen the public's understanding of the risks associated with virtual assets and potential fraudulent activities.

4. The CSRC will continue to strengthen intelligence gathering on various virtual asset-related businesses within the scope of its statutory powers, and follow up and take legal action against virtual asset trading platforms suspected of violating the law. If the case requires, the case will be referred to the police for handling.

The SFC encourages the public to lodge complaints online about any suspicious activities they come across. Public complaints are an important source of intelligence for the SFC.

02 Establish a channel to share information with the police

The SFC will explore with the police the establishment of a dedicated channel to share information on suspicious activities and irregularities on virtual asset trading platforms, and investigate the JPEX case to bring offenders to justice.

In line with the principle of “same business, same risks, same rules”, the SFC will continue to review Hong Kong’s regulatory system from time to time with the Hong Kong SAR Government in response to new market trends and study appropriate regulatory measures, including considering regulating other virtual asset-related businesses other than virtual asset trading platforms.

The SFC will continue to work closely with the Hong Kong SAR Government and other regulatory authorities to safeguard investor interests and market confidence on the one hand, and to create a convenient business environment on the other hand, to promote the sustainable and responsible development of Hong Kong's Web3 ecosystem through regulated service providers.

Liang Fengyi reminded the public that scams are difficult to detect in advance, and the public should be highly vigilant and be careful of high-interest traps. They should not blindly believe in the recommendations of online KOLs. If they want to invest, they should use regulated virtual asset platforms.

03 4 companies are applying for licenses

Huang Lok-yan, head of the Financial Technology Group of the Securities and Futures Commission, said that the list of applicants was made public in response to public demand to let the public know whether the platform made any false statements in applying for a license. Currently, there are four companies applying for licenses, including "HKVAX", "Hong Kong Digital Asset EX Limited (HKbitEx)", "Hong Kong BGE Limited", and "Victory Fintech Company Limited".

Huang Lexin reminded that all the trading platforms on the list are only applying for licenses, not already licensed. If investors want to trade, they should refer to the list of licensed trading platforms of the Securities and Futures Commission.

Liang Fengyi pointed out that there are many platforms in the market that claim to be applying for or preparing to apply for licenses. The public can confirm whether the platform has applied through the list, but it does not mean that the platform has met the regulatory requirements of the SFC.

Liang Fengyi said that the SFC will also set up a special list of suspicious platforms and provide more lists of unregulated platforms, strengthen investor education to raise awareness of fraud prevention, strengthen intelligence gathering, take legal action as soon as possible and encourage the public to complain to the SFC.

04 The Legislative Council Finance Committee will discuss the regulation of virtual asset trading platforms next month

The Hong Kong Legislative Council's Financial Affairs Panel (FC) will discuss the regulation of virtual asset trading platforms on the 9th of next month.

The Chairman of the Finance Committee, Lam Kin-fung, said that he had invited the Chairman of the Securities and Futures Commission, Raymond Lam, and the Chief Executive Officer Leung Fung-yee to attend. He hoped that the Securities and Futures Commission would disclose the names of suspicious institutions as soon as possible and introduce "down-to-earth" publicity methods to enable investors to take timely precautions and promote the development of the industry.

Lin Jianfeng said that the SFC announced that it will further strengthen information release and optimize the existing system, including publishing the licensed list, closed list, list of platforms deemed to have obtained licenses, and the list of applicants that have attracted the most attention from the outside world on its website. He described it as a belated spring and believed that the new arrangement would enhance transparency and investor confidence, provide investors with more specific and clear information, and facilitate supervision by the media and the public.

He believes that in addition to publishing relevant information on its website, the SFC should also conduct public publicity through more diversified and down-to-earth methods, including holding press conferences and using social platforms to update information in a timely manner. In particular, when encountering emergencies, the SFC should strengthen its immediate handling and crisis management capabilities.