Hong Kong Securities Regulator Warns Investors of Criminal Activity by Unlicensed Exchanges

The Hong Kong Securities and Futures Commission (SFC) has issued a warning regarding unlicensed cryptocurrency exchanges engaging in “improper practices,” emphasizing that such activities are considered a “criminal offense” in the city.

According to the SFC, certain trading firms have made false claims about submitting applications for licenses in Hong Kong. The regulator cautions that any false statements and improper practices will be treated seriously, potentially resulting in criminal charges.

The SFC’s statement shows that unlicensed cryptocurrency exchanges are not compliant with legal and regulatory requirements under the SFC’s rules, which were implemented as of June 1.

“It is an offense for any person to make a fraudulent or reckless misrepresentation for the purpose of inducing another person to trade in virtual assets (Note 1). The SFC will take into account any misrepresentation made by an unlicensed VATP (Virtual Asset Trading Platforms) in considering its fitness and properness to be licensed should it eventually submit license applications to the SFC.”

These platforms are misleadingly claiming compliance with regulations and even setting up new entities with intentions to apply for licenses, yet some of their services don’t adhere to the legal requirements, the SFC claimed.

The warning also extends to established entities associated with unlicensed VATPs, stating that they must apply for SFC licenses or cease operations in Hong Kong.

The first two exchanges to get licensed in Hong Kong—HashKey and OSL—adhere to the SFC’s regulatory framework.

Risks of Trading on Unregulated Platforms, Caution by Securities and Futures Commission

The SFC’s new regulatory framework, introduced on June 1, seeks to ensure the compliance of virtual asset service providers with legal requirements.

This framework includes measures for asset custody safety, Know Your Customer (KYC) procedures, anti-money laundering (AML) practices, and combating the financing of terrorism.

With this framework, the SFC has cautioned investors about the risks associated with trading on unregulated platforms.

“Investors may face the possible risk of losing their entire investment held on the VATP if it ceases operation, collapses, is hacked, or otherwise suffers from any misappropriation of assets.”

The SFC warns both Virtual Asset Trading Platforms (VATPs) and investors about the potential legal consequences and risks involved.

The regulatory body reiterated the importance of accuracy and compliance in representations made to the SFC and highlighted the risks investors face when dealing with unregulated platforms.

The SFC advises investors to exercise caution and refers them to its list of approved trading platforms for guidance.

Hong Kong’s Crypto Regulatory Landscape Despite China’s Strict Stance

While China has adopted a stricter stance on cryptocurrencies, Hong Kong has welcomed cryptocurrency exchanges and projects, positioning itself as a favorable destination for digital asset firms.

Authorities have aimed to strengthen Hong Kong’s global financial position through a regulatory framework conducive to the crypto industry.

“VATPs which consider themselves eligible for deeming under the transitional arrangements are reminded that the SFC may decide that deeming is inapplicable if it does not see a reasonable prospect for the VATPs to successfully show that they are capable of complying with the applicable legal and regulatory requirements,” said the SFC.

Hong Kong’s embrace of licensed crypto exchanges, such as HashKey and OSL, contrasts with its neighboring mainland’s broader crackdown on the sector.

As Hong Kong strives to establish itself as a crypto hub, the SFC’s vigilance in monitoring unlicensed activities and enforcing regulatory standards is vital to maintaining the city’s reputation within the financial industry.

NB: Any Information provided here is NOT FINANCIAL ADVICE. Do Your Own Research before making any Financial Decisions.