JPEX scandal another reminder for financial regulators to be alert
- As the number of cryptocurrency victims grows, Hong Kong authorities need to react faster to the latest get-rich schemes and close loopholes to protect investors
The number of victims of the JPEX cryptocurrency scandal is sure to grow beyond the police update of 1,641 complaints from clients involving HK$1.2 billion. The question now is whether the authorities should have been more proactive in protecting investors. The city does, after all, aim to be a virtual asset trading hub, prompting the market watchdog recently to update licensing guidelines for retail trading platforms. Investor protection is the paramount goal.
Unlicensed platforms are to be avoided. The JPEX affair is a reminder of that. The platform is nothing more than a HK$1 shell company, emerging from Sydney and expanding quickly in Asia.
JPEX was operating outside the purview of the regulators, with the watchdog, the Securities and Futures Commission (SFC), telling a press briefing it lacked the power to act because the platform was not under its regulatory jurisdiction.
Instead it proposed to step up investor education – not always an equal match for get-rich-quick lures. And police need complaints before they can act.
That said, the SFC did issue an alert 14 months ago in July 2022, stating that JPEX was unregulated, and urging investors to “be extremely careful”.
JPEX claims reach HK$1.2 billion in Hong Kong’s biggest-ever fraud case
Coming just three months after the new virtual asset regulations came into force, this case is a reminder that financial regulators need to be on their toes to get ahead of the curve, especially since an open economy and the borderless internet render many of the rules for bricks-and-mortar firms obsolete.
Answers will still be expected as to whether the authorities should have acted earlier. What, after all, should have been the responsibility of the SFC and police to act first to protect victims? Clearly it’s less than ideal to wait for sufficient complaints and financial losses to accumulate before taking action.
The local scandal comes after the collapse of the FTX cryptocurrency exchange in the United States and the indictment of its founder Sam Bankman-Fried, and raises questions once again about the suitability of cryptocurrencies as an investible asset class. No doubt regulators will be even more cautious about the city’s ambition to be a virtual asset hub. At least the global cryptocurrency craze is cooling; people and regulators will be more careful.
Hong Kong is an open economy, so it must deal with such investments and determine how they fit into the local financial ecosystem.
The SFC and police need to be aware of the need to react quickly to newfangled investments in future and close loopholes, not only to take punitive actions but to protect investors.
