Hong Kong JPEX scandal: securities watchdog under fire, as top government adviser slams earlier warnings as ‘talking to itself’
- Lawmaker and Exco member Jeffrey Lam says SFC wording ‘is so esoteric that many people don’t understand them’
- Before naming trading platform and alerting police in September, regulator issued nine earlier warnings but did not single out JPEX
A top government adviser on Saturday hit out at Hong Kong’s securities watchdog amid a growing cryptocurrency scandal, saying forewarnings by the regulator had been out of touch with the public and muted by an aggressive publicity drive by the trading platform in question.
Lawmakers also called on the Securities and Futures Commission (SFC) and law enforcement agencies to act swiftly in the JPEX fallout to reassure investors of Hong Kong’s potential to become a virtual asset trading hub.
The SFC is facing mounting questions after it only named JPEX in a warning on September 13 for “suspicious features” and referred the platform to police the next day for “suspected fraud”, following numerous earlier alerts that did not single out the company.
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Legislator Jeffrey Lam Kin-fung, who also sits on the government’s key decision-making body the Executive Council, on Saturday lamented that the SFC had lost touch with the public in its communication.
“SFC’s promotional efforts have been like talking to itself. [The messages] are very specific with a lot of details, but the wording is so esoteric that many people don’t understand them,” Lam told a radio programme.
Police had received 2,305 complaints from victims by Saturday. The claims totalled about HK$1.43 billion (US$182 million) in assets, making it the largest alleged fraud of its kind in Hong Kong.
JPEX, established in 2020, launched a massive advertising campaign the following year, engaging popular influencers who drew novice investors.
Before September, none of the nine alerts that the SFC issued on cryptocurrency investment had identified JPEX. The commission also pushed back on suggestions to list exchanges seeking licences under a new regime implemented in June.
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Accountant and lawmaker Edmund Wong Chun-sek questioned the regulator’s decision not to name JPEX earlier.
“Investors normally would feel at ease in an investment environment like Hong Kong,” he said on the same programme. “How would I know you are talking about my service provider if you do not name it?”
While acknowledging the SFC had enforcement limitations, Wong pointed out the regulator had a long history of working with police over financial crimes and therefore had no excuse to turn a blind eye to JPEX for so long.
Senior officials of the SFC and the government have agreed to address regulation of virtual assets trading platforms at a meeting of the Legislative Council’s panel on financial affairs on October 9, according to Lam, who chairs the panel.
Hong Kong’s regulatory regime on centralised virtual asset exchanges was passed by the legislature in December and came into effect in June, with a one-year grace period for exchanges to secure a licence upon meeting conditions.
Three months into the grace period, only two trading platforms have been licensed by the SFC.
In another Saturday radio interview, lawmaker Johnny Ng Kit-chong expressed concerns over other dubious operators taking advantage of the transition period.
“Reportedly there are more than a dozen exchanges active in Hong Kong, and we have no idea if they are applying for a licence. Hopefully the SFC will share more information [on the applicants] to enable wise decision-making by investors,” Ng said.
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While the SFC has expressed concern over giving a “false sense of security” by naming applicants, Emil Chan Ka-ho, co-chair of the Hong Kong Digital Finance Association, said a full disclosure by the regulator would be the lesser of two evils.
“The question would be irrelevant if there were no bad actors, but now someone has taken advantage of the information vacuum to mislead the public and the SFC should take into account its bound duty to protect investors,” Chan said.
While cryptocurrency exchanges are being brought under the regulatory oversight, over-the-counter digital currency changers, or OTCs, are not required to obtain a licence. Some OTCs were raided by police last week and their owners arrested on suspicion of engaging in a conspiracy to defraud in the JPEX case.
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Ng on Saturday called for more oversight on such businesses because of the key role they had played in bringing victims into the JPEX web, though Chan said he doubted the need for more regulation, arguing the misconduct in this case had been covered by existing laws.
Both Lam and Ng said overseas investors they met recently had not signalled concerns in their confidence in Hong Kong despite the JPEX scandal, including representatives from operators of the world’s two largest public blockchains who visited the city last week.
“Generally speaking, I have not seen any impact on Hong Kong’s ability to attract foreign investment,” said Ng, who noted blockchain operators had seen bigger scandals elsewhere.
“It could be a confidence boost for stakeholders around the world if the government handles the JPEX case properly.”
