Hong Kong to Enhance Cryptocurrency Regulations in Wake of Hounax, JPEX Scandals

November 30, 2023

By Sharan Kaur Phillora

In response to growing concerns over cryptocurrency scams in Hong Kong, Chief Executive John Lee Ka-chiu has indicated a possible strengthening of regulatory powers. 

Here’s what we know:

This move comes after the Securities and Futures Commission (SFC) was criticized for its inability to shut down Hounax, an unlicensed platform at the center of an alleged fraud totaling HK$153 million (about US$19.6 million). The situation has led to calls for the government to address legal loopholes.

Lee stated, “If any of our laws in this area need to be strengthened, or if the transparency of the information we release has room for improvement, we will actively consider it.” He also highlighted the need for trading only on licensed platforms and stressed the importance of delivering information swiftly and transparently to the public. 

To ensure investor protection, Lee emphasized using all available methods to combat unlicensed, illegal platforms or those with scam elements​. Furthermore, the government is contemplating giving more authority to regulators, and the SFC is considering utilizing existing laws targeting money laundering. This response came after the revelation that 148 residents lost about HK$153 million to the Hounax platform.

The Hounax case is not isolated. It follows the JPEX cryptocurrency exchange scandal, involving over 2,500 alleged victims and losses exceeding HK$1.5 billion, marking it as the city’s largest financial fraud case. This incident exposed significant flaws in Hong Kong’s regulatory regime. The police, however, did not find any links between the Hounax and JPEX cases​.

Former SFC chairman Anthony Neoh commented on the limitations faced by the regulator in such cases, noting the challenge in shutting down online platforms from outside Hong Kong. He suggested that the SFC could be granted additional powers, such as preventing residents from accessing suspicious sites. 

Gilbert Ng Man-him, a lawyer specializing in virtual assets, echoed the need for proactive investigative powers for the SFC but cautioned against giving them the authority to immediately stop operations of platforms deemed suspicious to avoid potential harm to investors.

These developments highlight the ongoing struggle to regulate digital assets effectively in a rapidly evolving financial landscape. The Hong Kong government’s proposed measures aim to provide a more secure environment for investors, balancing the need for robust regulations with the dynamic nature of digital finance.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

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