Hong Kong Raises Alarm on Crypto Platforms Just Two Months after Easing Regulations

<p>More than two months ago, cryptocurrency regulations in Hong Kong <a href="https://www.financemagnates.com/cryptocurrency/hong-kongs-new-crypto-regime-kicks-in/" target="_blank" rel="follow">loosened
considerably</a>, allowing retail traders back into the market. However, as it
turns out, the Securities and Futures Commission (<a href="https://www.financemagnates.com/tag/sfc/" target="_blank" rel="follow">SFC</a>) has recently identified increased
improper activities being carried out by some unlicensed virtual asset trading
platforms (VATPs). Not only are these practices deceptive, but they endanger investors. The regulator raised four main concerns and their
implications for both VATPs and retail investors.</p><p>SFC Warns against Improper
Practices</p><p>In its
latest warning, the SFC drew attention to several important issues concerning
cryptocurrency trading in Hong Kong. The first issue pertains to false
information about applying for a cryptocurrency license in the special
administrative district. The second concerns companies that do not comply with
local regulations, and the third is about firms opening their branches in Hong
Kong despite lacking the necessary authorizations. Finally, the fourth issue is
a warning explicitly directed at retail investors.</p><p>A deceptive
trend that was identified involves certain VATPs falsely announcing that they have
applied for licenses from the SFC, giving a false impression of their
<a href="https://www.financemagnates.com/terms/c/compliance/">compliance</a> with regulatory norms. Although quite a few companies are applying for licenses in HK, <a href="https://www.financemagnates.com/cryptocurrency/hashkeys-full-crypto-licensing-opens-doors-for-retail-trading-in-hong-kong/" target="_blank" rel="follow">only one firm has been fully authorized to offer retail trading to local investors</a>. </p><p>"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. The SFC will
take into account any misrepresentation made by an unlicensed VATP in
considering its fitness and properness to be licensed should it eventually
submit license applications to the SFC," the SFC highlighted.</p><p>VATPs, that were operational
in Hong Kong before 1 June 2023, were given a transitional period to adjust to
the new regulations. Despite this, the SFC observed some VATPs initiating new
entities and launching products and services which may not necessarily adhere
to the latest legal and regulatory standards. Actions have been observed, such
as introducing virtual asset derivatives or schemes branded as 'savings' or 'earnings',
which are not sanctioned under the new rules. The SFC raises concerns about the
genuine intent of these VATPs to conform to the set regulations.</p><p>Besides the
newly initiated entities, the SFC has alerted about older established
entities of VATPs that continue to operate without licenses in Hong Kong.
Engaging in such unlicensed activities is criminal. Such entities need to
either acquire an SFC license or close their operations.</p><p>"These
established entities will also need to apply for SFC licenses, or they should
proceed to close their business in Hong Kong. Conducting unlicensed activities
in Hong Kong is a criminal offense," the regulator added.</p><p>SFC Alerts Retail
Investors</p><p>Some VATPs
misleadingly claim to have filed for an SFC license or express intentions to do
so in the future, but this is not always the truth. The SFC warns of the
inherent risks associated of trading on an unregulated platform, emphasizing
the potential loss of all investments in the event of mishaps, such as hacks or
misappropriations. For clarity on a platform's licensing status, investors
should consult the SFC's official list of virtual asset trading platforms, which
<a href="https://www.sfc.hk/en/Welcome-to-the-Fintech-Contact-Point/Virtual-assets/Virtual-asset-trading-platforms-operators/Lists-of-virtual-asset-trading-platforms">can
be found here</a>.</p><p>The
increasing activity of unregulated and potentially dangerous entities comes as
no surprise. As Hong Kong reopens to <a href="https://www.financemagnates.com/terms/c/cryptocurrencies/">cryptocurrencies</a>, interest in the industry
is growing significantly. The cryptocurrency exchange, <a href="https://www.financemagnates.com/cryptocurrency/okx-scoops-10000-users-in-one-month-after-hong-kong-legalized-crypto/" target="_blank" rel="follow">OKX has attracted 10,000
users</a> to its local mobile app in just one month. Large exchanges such as
<a href="https://www.financemagnates.com/cryptocurrency/gateio-crypto-exchange-confirms-its-sfc-license-application/" target="_blank" rel="follow">Gate.io entered</a> the local market long before the regulations went into effect,
wanting to be first in onboarding local traders.</p>

This article was written by Damian Chmiel at www.financemagnates.com.