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Police in Hong Kong have arrested six people following regulatory warnings about an alleged fraudulent cryptocurrency exchange.
The Securities and Futures Commission of Hong Kong (SFC) on 13 September issued a warning about JPEX, a crypto exchange serving customers in Hong Kong.
According to the regulator, JPEX claimed to be an authorized virtual asset trading platform (VATP), despite the fact that it never obtained or applied for a VATP license from the SFC.
The agency also noted that it had received complaints from small investors who were unable to withdraw funds from the platform, which claimed to offer extremely – and unrealistically – high returns to investors.
Less than a week after the SFC warned investors about JPEX, Hong Kong police on September 19 announced the arrest six people in an exchange fraud investigation. Police there reportedly received more than 1,400 calls from individuals claiming to be victims of the exchange, with suspected fraud losses totaling more than $128 million.
The enforcement action to disrupt JPEX indicates that authorities and regulators in Hong Kong are intent on ensuring that the growing crypto sector there is not tainted by fraud and scams.
Since launching its new crypto licensing framework earlier this year, the SFC has repeatedly emphasized that crypto exchanges and other VAPTs must obtain a license if they wish to offer authorized services in Hong Kong. The action against JPEX shows that the SFC is ready to go the extra mile when it comes to cracking down on unapproved services operating there.
To learn more about the SFC’s virtual assets regulatory framework for Hong Kong, download our webinar with its Director of Licensing and Head of Fintech: Elizabeth Wong.
The Central Bank of Hong Kong has issued an additional warning on cryptocurrencies
In other related Hong Kong news, the Central Bank of Hong Kong has issued a warning aimed at protecting the public from fraud and deception in the crypto space.
On September 15, it was issued by the Hong Kong Monetary Authority (HKMA). warning pointing out that some crypto companies inappropriately and illegally refer to themselves as “banks” and the products they offer as “deposits”, even though they have never been authorized to provide banking services in Hong Kong. According to the HKMA, these claims could “mislead the public into believing that these crypto firms are banks authorized in Hong Kong, to which they can entrust their savings”.
The HKMA is not the first banking supervisor to warn the public about the risks posed by crypto firms posing as licensed banks. Earlier this year, the US Federal Deposit Insurance Corporation (FDIC) warned about crypto firms that misrepresent to the public that they offer insured deposits when in fact they do not.
The New York regulator is tightening its framework for approving coins
On September 18, the New York Department of Financial Services (NYDFS) announced. new proposed instruction with the aim of strengthening its regulatory framework for cryptocurrencies. Specifically, the guidelines relate to the process that virtual exchange companies in New York must follow when listing coins for trading on their platform.
Since 2015, crypto exchanges and custodians in New York have been required to apply for a BitLicense to offer their services in the state. In 2019, the NYDFS laid out a framework for listing coins that BitLicense firms must follow, setting out a specified “Green List” of approved cryptoassets that firms can list without approval and detailing other aspects that firms must consider when offering other non-licensed tokens. lists.
In its new proposed guidance, the NYDFS intends to amend the coin inventory framework as follows:
- requiring firms to consider additional factors when assessing the risks of coins they plan to list, including risks related to conflicts of interest and consumer protection;
- requiring firms to maintain a detailed delisting process when they stop offering certain coins; and
- reducing the number of greenlisted coins so that the only greenlisted coins are bitcoin, ether and six approved stablecoins.
NYDFS will accept public comments on the updated guidance until October 20.
The changes to the coin listing guidelines are part of the NYDFS’ “VOLT” initiative, which aims to improve the state’s ability to regulate cryptoassets. In addition to this latest proposal, over the past 18 months the NYDFS has also issued guidance on issues ranging from issuance of stable money to the using blockchain analytics to manage financial crime risk.
The SEC’s head of cryptocurrencies warns of additional actions to come
A senior official at the US Securities and Exchange Commission (SEC) has sent a strong message that the agency will not back down from its aggressive stance on cryptocurrencies anytime soon.
At a conference in Chicago on September 19, David Hirsch – head of the SEC’s Crypto Assets and Cyber Unit – stated that the SEC will continue to initiate proceedings against actors in the crypto space.
He added that he would not be prevented from doing so, despite the recent legal setback the regulator faced in its own the case against Ripplewhich the agency is currently appealing.
Hirsch specified that the SEC will continue to initiate cases against “brokers, dealers, exchanges, clearing agencies or anyone else active in this space”. Furthermore, he made it clear that players in the decentralized finance (DeFi) space will also be under scrutiny, noting that “the addition of the DeFi label will not be something that will deter us from continuing our work.”
As much as the SEC’s stance may frustrate players in the US crypto space, compliance teams should continue to expect intense scrutiny and enforcement from the US securities regulator.
UK FCA issues final warning to unregistered crypto firms on promotions
The UK’s Financial Conduct Authority (FCA) is threatening to take action against overseas crypto firms that advertise crypto services to UK consumers without proper approvals.
The regulator announced on September 21 an open letter to unregistered cryptocurrency firms reminding them of their obligation to comply with UK financial promotion requirements. They are set to mandate that cryptocurrency companies that are not registered with the FCA can promote their products to UK consumers, provided those promotions are approved by another authorized firm.
Crypto companies that do not meet these requirements are not allowed to promote their products in the UK and must take steps to ensure that their products are not sold and consumed there, for example by geoblocking UK consumers from their sites.
In its letter, the FCA specifically highlights concerns that overseas crypto firms marketing their products in the UK do not appear to be taking steps to comply with the UK’s financial promotion regime. It also reminds overseas companies that unapproved promotions can be prosecuted as a criminal offence. See Elliptic’s previous analysis of the UK financial promotion regime here and here.
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