JPEX storms Hong Kong SFC plans to issue virtual asset exchange "blacklist"

After the implementation of the virtual asset trading platform application (VASP) system in Hong Kong, the competent authority, the Hong Kong Securities and Futures Commission (i.e., the Hong Kong Securities and Futures Commission, SFC), began to manage irregularities in accordance with the Anti-Money Laundering and Counter-Terrorist Financing Implementation Ordinance that came into effect on June 1. Risks from regulated and questionable platforms.

According to the latest news from SFC on September 25, SFC plans to release the “List of Licensed Virtual Asset Trading Platforms”, “List of Completed Virtual Asset Trading Platforms”, “List of Authorized Virtual Asset Trading Platforms” and “List of Virtual Asset Trading Platforms”. List of Applicants", in order to optimize supervision during the transition period of VASP applications and ensure transparent information for investors.

In addition, the SFC will also publish a special "list of suspicious virtual asset trading platforms" to alert the public of risks as early as possible.

JPEX, which operates for Hong Kong investors, became the first "suspicious virtual asset trading platform" to hit the SFC's crosshairs.

On September 13, SFC stated that JPEX, which relies on celebrities and Internet celebrities to attract traffic, made false and misleading statements such as "licensed" and "entered into business cooperation with Hong Kong listed companies", and its entities have not submitted any virtual information to the SFC. License application for asset trading platform. As early as July 2022, the platform was included in the SFC's "List of Unlicensed Companies and Suspicious Websites."

After being named by the SFC, JPEX users encountered difficulties in withdrawing funds. According to the Hong Kong police, more than 2,000 cases have been reported, involving more than HK$1.4 billion, and 12 suspects involved have been arrested. This case was also called "the largest financial fraud case in history" by the Hong Kong media.

The JPEX incident and SFC's latest "4+1" list measures have also sounded the alarm for virtual asset exchanges operating in Hong Kong. Exchanges that want to apply for Hong Kong VASP should give up "wild ways" to divert traffic as soon as possible.

SFC plans to release the "4+1" list to improve transparency

On September 25, SFC held a special press conference to once again emphasize that the public should be alert to local platforms with unlicensed or suspicious business practices. SFC Chief Executive Officer Liang Fengyi also said that existing virtual asset trading supervision will be optimized.

According to the SFC statement, optimization measures include 4 lists of virtual asset trading platforms, namely:

• List of licensed virtual asset trading platforms;
• List of closed virtual asset trading platforms, that is, the names of virtual asset trading platforms that need to be adjusted to close within a specified period in accordance with the law
• The list of authorized virtual asset trading platforms, that is, the names of the virtual asset trading platforms that have been authorized until June 1, 2024, when the license application for a virtual asset trading platform that was previously recognized as a licensed virtual asset trading platform is approved , withdraw or refuse, the name of the platform will be transferred to the "List of Licensed Virtual Asset Trading Platforms" or "Closed Virtual Asset Trading Platforms"
• Virtual Asset Trading Platform Applicant List

In addition to these four lists, SFC will also publish a list specifically for suspicious virtual asset trading platforms, which will be published on the Hong Kong Securities and Futures Commission website for easy inquiry. The SFC will also consider providing more information about unregulated virtual asset trading platforms to alert the public early and ensure that information is released in a clear, transparent and timely manner.

In fact, this “4+1” list initiative is also an important supplement to the implementation of Hong Kong’s Virtual Asset Service Provider License (VASP) and the one-year transition period for applying for the license. SFC has also continued to demonstrate its support for virtual assets after the New Deal. The regulatory subjectivity of transactions.

Starting from June 1 this year, Hong Kong will establish a new licensing system for centralized virtual asset trading platforms. All virtual asset trading platforms that operate virtual asset exchange businesses in Hong Kong or actively promote their services to Hong Kong investors must apply to the SFC. And was issued a digital asset license and a virtual asset service provider license (VASP license).

After the policy was promulgated, a number of virtual asset trading platforms announced that they would “apply for a VASP license.” Cryptocurrency exchanges in Hong Kong were so mixed that the public could not tell which platforms were actually applying for licenses and fulfilling their compliance review obligations. The SFC has obviously noticed this and has continued to issue risk warnings to the public since August.

SFC issues warning statements one after another

On September 13, JPEX appeared in the SFC’s warning statement and became the first virtual asset trading platform named “unregulated” and “suspicious” by the SFC. This trading platform was almost the trigger for the SFC to introduce the “4+1” list measures.

JPEX was targeted for a long time and was named by the SFC, and then it was thundered

Hong Kong citizens may be familiar with the JPEX trading platform. The trading platform’s advertisements have been all over Hong Kong’s major streets and subways. Hong Kong star Julian Cheung, model Zhuang Simin and other stars have endorsed it, and local Hong Kong Internet celebrities such as "Master Coin" Huang Chengjie and Lin Zuobang have repeatedly appeared on social media. Above is the JPEX platform.

JPEX advertisements that once appeared on the streets of Hong Kong

“Actively promoting the platform’s services and products to the Hong Kong public through social media influencers and over-the-counter virtual asset currency exchangers (over-the-counter exchange shops)” has become one of the reasons why JPEX was targeted by the Hong Kong Securities and Futures Commission, and it is worth It should be noted that as early as March 2022, this platform had already entered the SFC's field of vision, and was included in the SFC's "Unlicensed Companies and Permitted Websites List" in July of that year, reminding the public that the platform is not subject to regulation. .

JPEX was included in the SFC "blacklist" in July last year

JPEX, which was included in the "blacklist", has not stopped operating in Hong Kong. After June this year, the SFC began to take action against JPEX after it obtained the regulatory power over virtual asset transactions in accordance with the law.

On August 7 this year, the SFC officially warned the public of the risks, saying that some unlicensed virtual asset trading platforms falsely claimed to have submitted a license application to the China Securities Regulatory Commission, which may lead the public to mistakenly believe that the trading platform complies with the regulatory requirements of the China Securities Regulatory Commission. .

On September 13, the SFC directly named the trading platform and stated that none of the entities under the JPEX Group have been licensed by the Securities and Futures Commission, and have not applied to the Securities and Futures Commission for a license to operate a virtual asset trading platform in Hong Kong. There are also many suspicious aspects in the operating methods, including "claiming to have obtained a license to operate a virtual asset trading platform from several overseas regulatory agencies", "having entered into business cooperation with a Hong Kong listed company and receiving investment" and other false propaganda, "for some products "Providing extremely high returns", retail investors complained that "account balances were reduced and changed."

In response to this statement, JPEX announced that it intends to apply for a license and expressed "extreme disappointment with the unfair practices of the Securities Regulatory Commission that disrupt market order."

On September 20, the SFC issued another statement reiterating that JPEX had not obtained a license or applied for a license. It also stated that the trading platform had never contacted the China Securities Regulatory Commission regarding a possible license application, and disclosed that "the information subsequently obtained by the China Securities Regulatory Commission is shocking." It is suspected that this case involves fraud and has been referred to the police."

According to Hong Kong media reports, as of September 23, the Hong Kong police had received more than 2,300 JPEX-related reports, involving more than HK$1.4 billion, and 12 suspects involved have been arrested, including diverting traffic for JPEX and operating over-the-counter exchanges. The store’s Internet celebrities Lin Zuo, Chen Yi, Huang Zhengjie, etc.

The two sides faced off and the incident escalated. JPEX users found that it was difficult to withdraw their virtual assets stored on the platform. First, you need to fill out an application form to withdraw funds from JPEX. Some users also claimed that the platform limits the withdrawal amount to 1,000 USDT (equivalent to approximately 1,000 US dollars), and the withdrawal fee has been increased to 999 USDT, which means that users can only withdraw up to 1 USDT.

Users are having difficulty withdrawing their currency, but JPEX has detected abnormal large-amount and high-frequency outflows of USDT.

Blockchain data analysis company Bitrace audited two JPEX fund transfer addresses on the Tron network and found that between September 14 and 20, a JPEX transfer address transferred 1.5482 million USDT to 11 addresses after the 14th, and then transferred into multiple trading applications and platforms; during the same period, another transfer address transferred more than 7.21 million USDT to 7 addresses. "This part of the funds is neither a user withdrawal nor a normal business activity of the platform, but an abnormal outflow."

Bitrace's latest on-chain fund audit also pointed out that JPEX-related addresses have flowed into more than 190 million risky USDT in the past 20 months. These risky funds involve online gambling, money laundering, and gray and black industries.

Those involved in JPEX who are at the center of the storm may face criminal liability.

According to Hong Kong's Anti-Money Laundering and Counter-Terrorist Financing Ordinance, after June 1, 2023, it will be a crime to operate and provide virtual asset services without a VASP license.

If convicted upon public prosecution, the offender is liable to a fine of HK$5 million and 7 years' imprisonment. In the case of a continuing offence, an additional fine of HK$100,000 may be imposed for each day during which the offense continues. If convicted on summary basis, the offender is liable to a fine of HK$5 million and 2 years' imprisonment. In the case of a continuing offence, a further fine of HK$10,000 may be imposed for each day during which the offense continues.

Regulatory Thunder warns applicants to exercise caution‍‍‍‍‍

From issuing warnings, naming suspicious platforms, and cooperating with the police to strike hard, the SFC has shown a thunderous attitude towards virtual asset trading service providers that cross the line. This also sends a signal to the outside world: platforms operating virtual asset trading in Hong Kong will always follow up with the SFC. regulations, and unlicensed exchanges still operating in Hong Kong will face considerable risks.

"Investor protection" is an important principle for the specific implementation of supervision by SFC.

On September 18, Hong Kong Legislative Council member Wu Jiezhuang held a separate press conference. In response to the suspected fraud incident on the virtual asset trading platform JPEX, he said that the incident had a great impact on the development of virtual assets in Hong Kong and the government should do more to protect small investors. . On September 19, Hong Kong SAR Chief Executive Lee Ka-chiu also stated that this incident reflects the importance of supervision, including the need to choose to invest in a regulated and licensed trading platform, and investors must also be aware of virtual assets and related risks. .

Under the new regulatory system, it is not easy to obtain a VASP license. Virtual asset trading platforms need to meet various conditions such as company qualifications, investor protection, combating money laundering, risk management, internal monitoring, and network security before they can obtain a license. Currently, no exchange has obtained a VASP license. Before holding this license, it is necessary to obtain the No. 1 (securities trading) and No. 7 license (providing automated trading services) issued by the SFC.

According to the SFC’s previous statement, currently only two virtual asset trading service providers have obtained licenses No. 1 and 7, namely OSL Digital Securities Limited and Hash Blockchain Limited.

JPEX's high-profile and divisive publicity and diversion strategy hit the "point of the gun". SFC's heavy blows in conjunction with the police had the meaning of "killing the chicken to scare the monkey". The stated stance, attitude and methods also served as a warning to virtual companies that wanted to develop their business in Hong Kong. Asset trading platforms are sounding the alarm.

With the implementation of the “4+1 List” initiative, the information disclosure of virtual asset trading platforms in Hong Kong will become increasingly complete. It is foreseeable that, with the precedent of JPEX, various virtual asset trading platforms that plan to operate in compliance with regulations in Hong Kong will keep a low profile before obtaining licenses, and another corner of the jungle in the crypto world has disappeared.