Hong Kong’s financial regulators have decided to retain the grace period for crypto firms despite the city grappling with major fraud scandals involving crypto exchange platforms JPEX and Hounax in recent weeks, local media reported on Nov. 27.
The grace period allows crypto firms to continue operating in Hong Kong without a license until June 2024 in order to allow ample time to comply with new regulatory standards introduced earlier this year.
Despite the recent scams, the Securities and Futures Commission (SFC) believes that abrupt changes to the grace period could be counterproductive, potentially destabilizing the burgeoning virtual asset sector in Hong Kong.
SFC Director of the Licensing and Fintech Unit Wong Lok-hei said:
“Scams can happen with or without the grace period.”
Meanwhile, SFC CEO Leung Fung-yee echoed the sentiment and said investors must be wary of schemes offering unrealistically high returns.
She added that platforms like Hounax are not regulated entities, and the SFC does not have the power to shut down their operations directly.
High-profile crypto scandals
The total number of investment-related fraud cases in Hong Kong from January to September was a staggering 4,331 — amounting to losses of around HK$2.82 billion.
The JPEX and Hounax cases, involving deceptive advertising tactics and restrictions on withdrawals, have revealed significant gaps in the regulatory oversight of digital assets.
The Hong Kong police have recently escalated their actions against fraudulent activities in the crypto sphere, arresting 30 more individuals linked to JPEX, bringing the total number of arrests to 66.
Despite these arrests, no formal charges have been pressed, and the suspects have been released on bail. The JPEX scandal has left 2,623 people victimized, with losses estimated at around HK$1.6 billion.
Meanwhile, authorities recently issued warnings against Hounax after 131 victims who collectively lost close to HK$120 million filed complaints against the platform. The most significant single reported loss involved a 69-year-old woman who was defrauded of HK$12 million.
In response to these incidents, the Hong Kong Police have advised the public to be vigilant, especially regarding unsolicited investment opportunities on social media, suspicious mobile apps, and unverified websites. The SFC has also warned that platforms like Hounax are suspicious and have employed deceptive tactics to lure investors.