JPEX probe tests Hong Kong’s crypto-friendly stance

The teal-and-white commercials of cryptocurrency group JPEX, or Japan Change, had been inescapable in Hong Kong final 12 months on constructing partitions, taxis and trams. The corporate’s slogan “funding: extra than simply shares”, was marketed for weeks on an enormous billboard within the centre of town’s monetary district.

Months later, JPEX’s identify is outstanding for a unique motive: Hong Kong police have opened an investigation into alleged fraud and arrested JPEX workers, whereas town’s regulator, the Securities and Futures Fee, has accused the corporate of deceptive buyers.

The investigation into the change is testing Hong Kong’s dedication to a rigorous however crypto-friendly regime. As soon as house base to main crypto firms together with Sam Bankman-Fried’s FTX and Crypto.com, the territory launched a brand new licensing regime in June, permitting retail buying and selling in an try and cement its high place as a buying and selling hub for digital property.

“I feel the regulators will look again and see that they need to have clamped down on non-licensed gamers on day one, when the licensing regime went stay,” stated Carlton Lai, head of blockchain analysis at Daiwa Capital Markets. He added: “The ball is now within the regulator’s courtroom to show that their new regime can defend buyers who use licensed platforms.”

In September, police arrested not less than 11 individuals, together with JPEX workers, workers at crypto shops and on-line influencers, on suspicion of conspiracy to commit fraud for allegedly working an unlicensed crypto change. Hong Kong authorities stated they acquired greater than 2,300 complaints concerning the platform, with claims of losses totalling as a lot as HK$1.4bn ($179mn).

The allegations in opposition to JPEX embody deceptive buyers by claiming to have utilized for a crypto buying and selling licence and charging customers exorbitant charges to withdraw funds, in line with police and the regulator. Police have frozen property price greater than HK$60mn, together with HK$44mn in actual property, in reference to the case.

The regulator positioned JPEX’s web site on its alert listing of firms it believes are focusing on Hong Kong buyers with out a licence as early as July final 12 months, and has constantly warned buyers about buying and selling on unlicensed platforms. It additionally cautioned that not all firms claiming to have utilized for licences may very well have carried out so.

The regulator this month issued a press release warning in opposition to JPEX particularly, noting that it had not utilized for a licence within the metropolis nor was it licensed for digital asset buying and selling abroad, regardless of the corporate’s claims to carry permits from regulators in Australia and Dubai. Final 12 months, Japan’s bourse JPX issued a press release saying it had no ties to JPEX.

JPEX disputes the allegations. “SFC has immediately made a collection of accusations in opposition to our platform’s working mannequin and promotional strategies, which we vehemently resent as they had been made with out investigation or overview,” stated JPEX in a press release on September 20.

JPEX couldn’t be reached for additional remark. The value for JPC, JPEX’s in-house cryptocurrency, fell 67 per cent in every week as of Friday, in line with CoinMarketCap.

Lawmakers have stated that the case vindicates town’s crypto rollout as a result of it demonstrates Hong Kong’s capacity to take motion in opposition to non-compliant teams.

“The incident concerning JPEX truly displays the need for a correct regulatory system for digital property buying and selling,” stated metropolis chief John Lee at a press convention final week.

Hong Kong lawmaker Johnny Ng, a member of the Chinese language Folks’s Political Consultative Convention, China’s high political advisory physique, stated he believed that JPEX was an remoted incident and was unlikely to gradual town’s crypto push.

However Foster Yim, a barrister at Liberty Chambers, stated the scandal might improve scrutiny of some purposes for crypto buying and selling licences and was prone to gradual the method down. “I feel the largest takeaway is for most people, particularly the retail buyers, to be actually cautious about this new funding,” he stated, referring to the crypto market.

JPEX’s formidable promoting marketing campaign and its co-operation with native influencers gave it an outsize presence within the metropolis.

“They understood very effectively the psyche of the native retail public, they understood very effectively the best way to persuade individuals to take a position cash with them,” stated Donald Day, chief working officer at Hong Kong-based digital asset buying and selling platform VDX and a former regulator on the SFC.

JPEX targeted on “the Hong Kong retail investing public with very particular focused messages, together with high-yield, high-return, low-risk”.

One investor in JPEX in her 30s, who put HK$1.2mn on to the platform, stated the commercials and the recommendation of workers at an over-the-counter retailer attracted her to the change.

“The SFC has probably not revealed clearly who’s now licensed and who isn’t,” she added. “Many individuals are nonetheless fairly confused.”

The SFC on Monday stated it could launch a listing of firms which have utilized for crypto buying and selling licenses within the metropolis, having solely final week stated that such a transfer would create “a false sense of safety” for buyers.

JPEX alleged victims have a really slim likelihood of having the ability to retrieve most of their crypto property on the platform due to its obscure possession construction and the shortage of element about which entities personal which property, in line with Jason Chan, a companion at Howse Williams who specialises in digital property.

“Will this knock confidence? Sure, I feel initially, particularly if individuals aren’t in a position to get well their property,” stated Jonathan Crompton, Hong Kong-based companion at regulation agency RPC.

“The crypto business totally expects there to be extra FTX-like points popping out of the woodwork as regulatory regimes come into impact and as markets mature.”