JPEX fraud puts VATP regime in focus

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Close to 30 people have been arrested following the SFC’s referral of the JPEX alleged fraud case to the police. The case serves as a stark reminder that investors should be aware of unregulated VATPs and that VATPs must obtain a proper licence before they operate in Hong Kong.

In a statement issued in September, the SFC clarified its position in relation to JPEX. It had become aware of the virtual asset trading platform (VATP) known as JPEX actively promoting services to the Hong Kong public through social media influencers, key opinion leaders and over-the-counter virtual asset (VA) money changers.

The SFC emphasised that it hadn’t licensed or authorised any entities in the JPEX group to operate a VATP in Hong Kong. The regulator also noticed several suspicious practices associated with JPEX and its promotion:

  • JPEX falsely claimed on its website and local advertisements to be a licensed and recognised platform for trading VAs and virtual currency, but it had not obtained the appropriate licenses from overseas regulators.
  • There had been complaints from retail investors being unable to withdraw VAs from their JPEX accounts or experiencing unauthorised alterations to their account balances.
  • JPEX offered products on its website related to VA “deposits”, “savings” or “earnings” which were prohibited under the SFC’s regulatory regime for VATPs.

Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, engaging in fraudulent or deceptive practices related to virtual assets is an offence. This gives the SFC the authority to take action against individuals and entities involved in such misconduct.

The regulator clarified that JPEX had never approached it regarding a licence application, and no entity within the JPEX group was licensed or had applied for a licence to operate a VATP in Hong Kong. Based on subsequent information, the SFC had suspicions of fraud and referred the matter to the police.

As a result of the JPEX incident, the SFC has increased its focus on the importance of proper regulation to maintain market confidence. It also emphasised the need to enhance the dissemination of information to the investing public through the Alert List, warnings and investor education to help them better understand the risks associated with suspicious websites or VATPs.

In response, apart from publishing the “list of licensed VATPs”, the SFC has also released:

  • a list of VATP applicants
  • a “list of closing-down VATPs” for platforms required to shut down within a specified period
  • a “list of deemed licensed VATPs” comprising platforms deemed licensed as of 1 June 2024
  • a list of suspicious VATPs.

The VATP licensing regime, which was launched in June, sets out several regulatory requirements VATPs or VATP applicants must fulfil to provide VATP services.
The SFC’s renewed focus on compliance with this regime following the JPEX case makes it even more important to understand the regime and make sure you’re appropriately licensed for any related activities you carry out.

How can we help

We can help you with any element of SFC licensing and have a team of experts in VAs regulation. In particular we can:

  • help with VATP licensing applications including issuance of independent assessment reports
  • design effective internal control frameworks for VATP operators to ensure fulfilment of SFC proposed requirements
  • advise global VATP operators by connecting with our international Bovill colleagues.

 

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