Hong Kong Chief Executive Expresses Willingness to Cooperate on Granting More Powers to Regulate Crypto Exchanges: Report

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The Chief Executive of the Hong Kong Special Administrative Region, John Lee, has responded to the recent investigation into the unlicensed virtual-asset trading platform Hounax.

On November 27, Chief Executive John Lee addressed the recent virtual platform supervision fraud and emphasized the importance of government supervision to protect investors and crack down on unlicensed platforms. According to a local news blog, he expressed a willingness to cooperate with regulators and grant additional powers if needed to crack down on unlicensed crypto exchanges.

He said,

“If it is necessary to provide power to regulatory agencies, the government will actively cooperate.”

His comments highlight the need for government supervision to protect investors and combat unlicensed platforms in the crypto space, as the recent Hounax fraud case follows a similar incident involving JPEX, a crypto exchange. The JPEX exchange scandal received over 2,000 complaints and resulted in approximately $180 million in losses. A total of 66 individuals have been arrested in connection with the JPEX scandal. In response to these events, local regulators in Hong Kong are strengthening crypto regulations to prevent future industry catastrophes.

However, regulators have said the country’s one-year grace period for crypto exchanges won’t change. Lee urged investors to use licensed trading platforms for virtual asset transactions to safeguard their interests.

“The Hong Kong Securities and Futures Commission specifically reminds investors that all entities on the list of applicants for virtual asset trading platforms have not been licensed by the Hong Kong Securities and Futures Commission and may not comply with the requirements of the Hong Kong Securities and Futures Commission.”

Hounax Ponzi Scheme Hits Hong Kong Investors, Further Highlighting Challenges in Crypto Regulation

On November 25, another unlicensed exchange, Hounax, reportedly engaged in a Ponzi scheme, defrauding victims in Hong Kong of 148 million HKD ($18.9 million). The scammers pretended to be investment experts, luring users with promises of significant returns.

However, when users attempted to withdraw their funds, they discovered it was not possible.

Earlier this month, the Securities and Futures Commission listed Hounax as a suspicious crypto trading platform after it was found to have lied about its ties with a financial institution and a venture capital firm.

Before being added to the blacklist by the China Securities Regulatory Commission, the cryptocurrency platform HOUNAX was actively recruiting customers in Hong Kong.

It claimed that it was co-founded by the original Coinbase technical team and had obtained a Canadian MSB license. It also threatened to obtain investment from well-known venture capital companies such as Sequoia Capital and IDG Capital.

Currently, the police have received 88 reports from 131 individuals, with alleged losses totaling $15.4 million. The age range of the victims was from 19 to 78, with the largest reported loss of $1.54 million belonging to a 69-year-old retired woman.

Hong Kong Authorities Under Scrutiny as Unlicensed Crypto Exchanges Continue to Defraud Investors

In response to the Hounax fraud case, the Hong Kong Securities and Futures Commission (SFC) released lists, including licensed virtual asset trading platforms, applicants, closed platforms, and those deemed licensed. The SFC emphasized the need for complete and compliant applications, including external evaluation reports, from platforms planning to apply for a license.

The website listed included nine suspicious virtual currency investment platforms. They are HOUNAX, JPEX, Hong Kong Digital Research Institute, BitCuped, FUBT, futubit/futu-pro, EFSPD, OSL trading, and arrano.network. However, the SFC has stated that it currently lacks the power to close unlicensed crypto exchanges.

However, some critics argue that authorities should take more decisive actions, such as blocking the platform from contacting the public, to prevent further harm to investors. Lawmaker Doreen Kong criticized the reliance on an alert list and called for more proactive steps to protect the public from fraudulent platforms. She emphasized the importance of addressing the limitations in the regulatory framework to prevent further harm to investors.

Leung Fengyi, Chief Executive Officer of the Hong Kong Securities and Futures Commission, also emphasized the importance of supervision in light of a virtual currency platform fraud case. Despite challenges, Leung stated that Hong Kong’s commitment to developing the Web3 ecosystem remains unchanged.