HKPF and SFC Form Joint Working Group to Tackle Illicit Activities in VATPs

The Hong Kong Police Force (HKPF) and the Securities and Futures Commission (SFC) have established a dedicated working group aimed at enhancing collaboration in monitoring and investigating illegal activities related to Virtual Asset Trading Platforms (VATPs). The formation of this group comes in the wake of ongoing investigations into the Dubai-based JPEX exchange and aims to bolster regulatory oversight in the rapidly evolving crypto market.

The working group was officially established on October 4, 2023, following a high-level meeting between the two parties on September 28, 2023. The group comprises officials from the HKPF’s Commercial Crime Bureau, Cyber Security and Technology Crime Bureau, and Financial Intelligence and Investigations Bureau, as well as the SFC’s Enforcement Division and Intermediaries Division.

The primary objectives of the working group are to:

1. Facilitate the sharing of information on suspicious activities and breaches related to VATPs.

2. Implement a mechanism to assess the risks associated with suspicious VATPs.

3. Enhance coordination and collaboration in related investigations.

Assistant Commissioner of Police (Crime), Ms. Eve Chung, emphasized the importance of the working group, stating, “The implementation of the new platform between the Police and the SFC is instrumental to fast-tracking vital intelligence exchange and joint collaboration in responses to the challenges arising from VATPs, so as to better protect the general public of Hong Kong.”

Similarly, the SFC’s Executive Director of Enforcement, Mr. Christopher Wilson, noted, “We have always valued our working relationship with the Police and we look forward to our even closer collaboration in deploying our respective expertise and resources in combatting problematic VATPs and protect the interest of investors.”

This initiative is part of a broader effort by Hong Kong regulators to tighten crypto market regulations. Days before the high-level meeting, 11 individuals were detained for questioning over their possible involvement in the JPEX scandal, where the SFC alleges that the firm has been operating in the region without a license. The SFC has since published a list of all licensed, deemed licensed, closing down, and application-pending exchanges, along with a list of “suspicious VATPs.”

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Hong Kong’s SFC Warns of Improper Practices by Unlicensed Virtual Asset Trading Platforms

The Hong Kong Securities and Futures Commission (SFC) has issued a warning against some unlicensed virtual asset trading platforms (VATPs) in Hong Kong, citing engagement in improper practices. The warning, released on the SFC’s official website, highlights several areas of concern and potential legal consequences.

False Claims of Licensing Applications

The SFC has observed that some unlicensed VATPs are falsely claiming to have submitted license applications to the regulatory body. Such misleading claims are considered an offense, as they may induce others to trade in virtual assets under a false sense of assurance. The SFC has stated that it will consider any misrepresentation when assessing the VATP’s fitness to be licensed.

Non-Compliance with SFC Requirements

The SFC has also noted that some VATPs are not complying with the legal and regulatory requirements under the new regime to regulate virtual asset service providers. This includes launching new services and products that may not comply with the applicable legal and regulatory requirements. Such non-compliant activities may raise concerns about the VATPs’ intention to comply with the SFC’s legal and regulatory requirements.

Transitional Arrangements

The transitional arrangements, effective before June 1, 2023, were designed to provide sufficient time for VATPs to prepare for compliance. However, the SFC has noticed that some unlicensed VATPs have set up new entities to provide virtual asset services in Hong Kong without complying with the new regime’s requirements.

Warning to Investors

The SFC has taken the opportunity to warn investors about the risks of trading virtual assets on unregulated VATPs. Investors are cautioned that they may face the risk of losing their entire investment if the VATP ceases operation, collapses, is hacked, or suffers from any misappropriation of assets.

The SFC publishes a list of licensed virtual asset trading platforms on its website to inform the public of the regulatory status of VATPs operating in Hong Kong. This list includes the names of virtual asset trading platform operators formally licensed by the SFC. Currently, only two VATPs, OSL Exchange and HashKey Exchange, are licensed by the SFC.

The SFC’s warning serves as a timely reminder to both VATPs and investors to adhere to the legal and regulatory requirements governing virtual asset trading in Hong Kong. The regulatory body continues to monitor the situation closely and has provided a list of licensed VATPs to guide investors. 

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