Lessons from JPEX: Hong Kong’s cryptocurrency retail investors must be better protected

In 2021, Hong Kong's regulatory bodies were commended for their cautious approach towards cryptocurrency trading. Since 2017, they had been gradually developing a regulatory framework for cryptocurrency trading, which helped the city avoid a potential reputational crisis. FTX, a cryptocurrency company based in Hong Kong, grew frustrated with the perceived slow pace of regulation and relocated to the Bahamas in 2021. However, it subsequently collapsed, revealing a significant fraud. nnSingapore's reputation was tarnished after it suffered losses from the collapse of Three Arrows Capital and Do Kwon's algorithm-based Terra and its native token, Luna. Temasek Holdings, a highly respected investment company, had to write off US275 million after investing Singapore's sovereign wealth in FTX. With Singapore's cryptocurrency ambitions faltering and Dubai's intentions clear, Hong Kong stepped into the fray. The government was urged to open the licensed market to retail investors to prevent inexperienced traders from using unlicensed or overseas exchanges and being exploited. This was the case with JPEX, an unlicensed cryptocurrency platform accused of defrauding investors. nnThere have been discussions about investor education and protection. However, it's questionable whether legislation can curb greed when saturation marketing and social media influencers have a more immediate impact. Singapore attempted to ban cryptocurrency promotions. Hong Kong's Securities and Futures Commission (SFC) has established protective measures for retail investors, but a comprehensive education and protection ecosystem to support the regulation is still lacking. Such an ecosystem would involve the police, SFC, the monetary and customs authorities, the cryptocurrency lobby, banks, and importantly, the public as citizen vigilantes. nnHong Kong's average citizens are skilled at identifying the latest cryptocurrency promotions, whether from banner ads in MTR stations or on social media, and locating the newest over-the-counter (OTC) cryptocurrency outlets. However, in the case of JPEX, neither the SFC nor the monetary or customs authorities seemed to have much jurisdiction. Regulators reportedly did not know the exact number of such OTC outlets operating in Hong Kong, despite the police regularly sending text messages warning of email scams and the Hong Kong Monetary Authority's anti-fraud task force.