The JPEX Scandal and Trust in the Cryptocurrency Sphere 

– By Natalie Barkus

The JPEX scandal has rocked Hong Kong’s cryptocurrency sector this month. With multiple arrests made and a projected $1.43 billion worth of assets involved, this insight will focus on the implications of the scandal and the subsequent SFC action.

Set up in 2020, Dubai-based cryptocurrency trading platform JPEX, was heavily promoted in Hong Kong, utilising influencers, over-the-counter shops, and MTR billboards to market their so-called “high return, low risk” scheme. Following numerous complaints of allegations of fraud, including the charging of high fees to withdraw funds, on September 13th, the SFC announced that JPEX had not obtained a license to operate in Hong Kong, nor had they ever applied to obtain a license. On September 18th, the police arrested six people as part of an investigation into the conduct of JPEX. The SFC stated that JPEX had made false and misleading statements regarding their licensing, although JPEX maintains they had made efforts, which were met with resistance and dismissal, to operate in line with the SFC guidelines. 

Under the June 2023 guidance for Virtual Asset Trading Platform (VATP) Operators and the revised Anti-Money Laundering and Counter-Terrorist Financing Ordinance, all VATPs providing services to retail investors intending on operating in Hong Kong or those VATPs intending on marketing their services to retail investors in Hong Kong are required to be licensed, subject to investor protection measures including token due diligence, and regulated by the SFC. Existing operators were allowed a grace period until May 2024, provided that they were eligible under the guidelines. 

The regulations were put in place by the SFC with the intention of protecting investors and promoting transparency and market confidence in order to push the cryptocurrency market in Hong Kong, thus establishing its position as a virtual asset trading hub. The need for security and regulation in the cryptocurrency trading sphere has been emphasised due to its volatility and the general lack of trust in the market following the collapse of FTX in November 2022. Increased regulations reduce the likelihood of unethical practices, promote a sustainable approach for trading platforms, and foster trust in the public, working toward increased investment in cryptocurrency. 

The questions arising from the scandal are what the ramifications will be for the industry and how the SFC will act to address the public’s concerns. As of September 18th, all of JPEX’s transactions were delisted, with investors’ assets frozen in JPEX and access to the platform blocked across Hong Kong. According to CoinMarketCap, the price of JPC (JPEX’s token) fell by over 50% in a week (as of September 26)(

). As a result of the scandal, the public have expressed concerns regarding VATPs and in order to combat this, the SFC has responded by informing the public of initiatives including publicising a list of VATP license applicants and suspicious VATPs, a public campaign to raise awareness in guarding against fraud and strengthening their intelligence processes. 

But will this be enough to foster trust between VATPs and the public? 

Not without efforts from all parties. The scandal has highlighted the importance of investors ensuring they are trading through platforms that have been licensed and are being regulated, as well as the importance for VATPs operating in Hong Kong to apply for and obtain the proper licensing in line with SFC regulations. Currently, only a small number of exchanges, such as OSL and Hashkey, have received approval by the Commission to serve retail investors in Hong Kong. The probe into JPEX has shown that the SFC can and will take disciplinary action where required, and aspiring Hong Kong VATPs should strive to comply with their regulations. Another key factor is investor education and protection. VATPs can facilitate investor protection and confidence not only by receiving licensing and being regulated, but also by being transparent with the risks involved in their schemes and providing detailed, accurate information when marketing their scheme to potential investors.


Learn with us in small steps

Find out more about us