Recent scams in the Hong Kong crypto scene has prompted calls for tighter regulation and increased regulatory powers to tackle crypto fraud.
Hong Kong is contemplating tightening regulatory measures to tackle crypto scams, as Chief Executive John Lee Ka-chiu announced a review of legislation following an alleged fraud of HK$148 million ($19 million) swindled from 145 people. The move comes as the Securities and Futures Commission (SFC) struggles to shutter Hounax, an unlicensed platform at the center of the scam.
Hong Kong Legislative Review and Calls for More Crypto Oversight
Lee affirmed the government’s intent to assess existing legislation and grant additional powers to regulators. Lawmakers criticized the SFC for how it handled the Hounax case, which led to millions in losses for 145 Hong Kong residents. The lawmakers expressed their outrage as they cannot swiftly enforce action against unlicensed platforms due to legal loopholes. They then prompted calls for the immediate closure of such gaps. However, the SFC defended its stance, saying it has no authority to close or restrict unregulated entities.
The Hounax case, involving social media outreach and alleged ‘hot tips’ shared via WhatsApp to lure investors, is another in a series of crypto-related scams in Hong Kong. Earlier, the JPEX exchange scandal in September, which resulted in over HK$1.5 billion in losses, highlighted regulatory shortcomings.
Former SFC chairman Anthony Neoh acknowledged limitations in enforcement, attributing challenges to online operations of platforms beyond Hong Kong’s jurisdiction. Neoh advocated for additional SFC powers to prevent access to suspicious sites. Furthermore, the former SFC exec called for international collaboration and enhanced investor education. Neoh hopes that these will address the root of the issue.
The Need to Implement Proactive Measures in Hong Kong
Virtual assets specialist Gilbert Ng Man-him proposed empowering the SFC to investigate suspicious platforms proactively, aiming to gather crucial operational information before taking enforcement actions. Notably, he urged against immediate cessation of operations, citing potential repercussions on investors.
The SFC’s inability to shut unlicensed exchanges has prompted a call for government collaboration to augment regulatory capabilities. Lee reiterated the need for enhanced supervision to shield investors and suppress unlicensed platforms. The Chief Executive also stressed the importance of trading exclusively on licensed platforms, advocating for robust investor protection and efficient dissemination of information.
Regulatory Responses to the Hounax and JPEX Scandals
The Hounax and JPEX scandals underscore the need for stringent regulatory measures. Due to these problems, the SFC has published a list of licensed platforms to aid investor decisions.
Notably, the fallout from the JPEX scandal led to the arrest of six individuals and over a thousand complaints involving $128 million. These incidents has propelled calls for a robust regulatory framework to safeguard investors. These calls also hope that tighter regulation will stifle the spread of unlicensed crypto platforms. Lawmakers in Hong Kong demand concrete actions beyond alert notifications, stressing the urgency for proactive measures to shield the public from financial harm.